{"id":"F2009L04080","name":"ASA 320 - Materiality in Planning and Performing an Audit - October 2009","slug":"asa-320-materiality-in-planning-and-performing-an-audit-october-2009","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"in_force","isInForce":true,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":81635,"registerId":"commonwealth-F2009L04080-current","compilationNumber":null,"startDate":"2026-04-02","status":"InForce","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"Obtaining a Copy of this Auditing Standa","sectionType":"section","heading":"Obtaining a Copy of this Auditing Standard","content":"##### Obtaining a Copy of this Auditing Standard\n\nThe most recently compiled versions of Auditing Standards, original Standards and amending Standards (see Compilation Details) are available on the AUASB website: www.auasb.gov.au","sortOrder":0},{"sectionNumber":"Contact Details","sectionType":"section","heading":"Contact Details","content":"##### Contact Details\n\n| Auditing and Assurance Standards BoardPhone: (03) 8080 7400E-mail: enquiries@auasb.gov.auPostal Address:PO Box 204Collins Street WestMelbourne Victoria 8007AUSTRALIA |\n| --------------------------------------------------------------------------------------------------------------------------------------------------------------------- |","sortOrder":1},{"sectionNumber":"COPYRIGHT","sectionType":"section","heading":"COPYRIGHT","content":"##### COPYRIGHT\n\n© 2023 Commonwealth of Australia. The text, graphics and layout of this Auditing Standard are protected by Australian copyright law and the comparable law of other countries. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non‑commercial use subject to the inclusion of an acknowledgment of the source as being the Australian Auditing and Assurance Standards Board (AUASB).\n\nRequests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to the Technical Director, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007 or sent to [enquiries@auasb.gov.au](mailto:enquiries@auasb.gov.au). Otherwise, no part of this Auditing Standard may be reproduced, stored or transmitted in any form or by any means without the prior written permission of the AUASB except as permitted by law.\n\nThis Auditing Standard reproduces substantial parts of the corresponding International Standard on Auditing issued by the International Auditing and Assurance Standards Board (IAASB) and published by the International Federation of Accountants (IFAC), in the manner described in the statement on Conformity with International Standards on Auditing. The AUASB acknowledges that IFAC is the owner of copyright in the International Standard on Auditing incorporated in this Auditing Standard throughout the world.\n\nAll existing rights in this material are reserved outside Australia. Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use only.\n\nFurther information and requests for authorisation to reproduce this Auditing Standard for commercial purposes outside Australia should be addressed to the Technical Director, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007 or sent to [enquiries@auasb.gov.au](mailto:enquiries@auasb.gov.au). Any decision to approve a request may also require the agreement of IFAC.\n\nISSN 1833-4393","sortOrder":2},{"sectionNumber":"CONTENTS","sectionType":"part","heading":"CONTENTS","content":"# CONTENTS\n\nCOMPILATION DETAILS\n\nAUTHORITY STATEMENT\n\nCONFORMITY WITH INTERNATIONAL STANDARDS ON AUDITING\n\nParagraphs\n\nApplication......................................................Aus 0.1-Aus 0.2\n\nOperative Date.........................................................Aus 0.3\n\nIntroduction\n\nScope of this Auditing Standard..................................................1\n\nMateriality in the Context of an Audit.............................................2-6\n\nEffective Date...............................................................7\n\nObjective..................................................................8\n\nDefinition..................................................................9\n\nRequirements\n\nDetermining Materiality and Performance Materiality When Planning the Audit............10-11\n\nRevision as the Audit Progresses..............................................12-13\n\nDocumentation..............................................................14\n\nApplication and Other Explanatory Material\n\nMateriality and Audit Risk.....................................................A1\n\nMateriality in the Context of an Audit.............................................A2\n\nDetermining Materiality and Performance Materiality When Planning the Audit..........A3-A13\n\nRevision as the Audit Progresses................................................A14","sortOrder":3},{"sectionNumber":"COMPILATION DETAILS","sectionType":"part","heading":"COMPILATION DETAILS","content":"##### Obtaining a Copy of this Auditing Standard\n\nThe most recently compiled versions of Auditing Standards, original Standards and amending Standards (see Compilation Details) are available on the AUASB website: www.auasb.gov.au\n\n##### Contact Details\n\n| Auditing and Assurance Standards BoardPhone: (03) 8080 7400E-mail: enquiries@auasb.gov.auPostal Address:PO Box 204Collins Street WestMelbourne Victoria 8007AUSTRALIA |\n| --------------------------------------------------------------------------------------------------------------------------------------------------------------------- |\n\n##### COPYRIGHT\n\n© 2023 Commonwealth of Australia. The text, graphics and layout of this Auditing Standard are protected by Australian copyright law and the comparable law of other countries. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non‑commercial use subject to the inclusion of an acknowledgment of the source as being the Australian Auditing and Assurance Standards Board (AUASB).\n\nRequests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to the Technical Director, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007 or sent to [enquiries@auasb.gov.au](mailto:enquiries@auasb.gov.au). Otherwise, no part of this Auditing Standard may be reproduced, stored or transmitted in any form or by any means without the prior written permission of the AUASB except as permitted by law.\n\nThis Auditing Standard reproduces substantial parts of the corresponding International Standard on Auditing issued by the International Auditing and Assurance Standards Board (IAASB) and published by the International Federation of Accountants (IFAC), in the manner described in the statement on Conformity with International Standards on Auditing. The AUASB acknowledges that IFAC is the owner of copyright in the International Standard on Auditing incorporated in this Auditing Standard throughout the world.\n\nAll existing rights in this material are reserved outside Australia. Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use only.\n\nFurther information and requests for authorisation to reproduce this Auditing Standard for commercial purposes outside Australia should be addressed to the Technical Director, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007 or sent to [enquiries@auasb.gov.au](mailto:enquiries@auasb.gov.au). Any decision to approve a request may also require the agreement of IFAC.\n\nISSN 1833-4393\n\n# CONTENTS\n\nCOMPILATION DETAILS\n\nAUTHORITY STATEMENT\n\nCONFORMITY WITH INTERNATIONAL STANDARDS ON AUDITING\n\nParagraphs\n\nApplication......................................................Aus 0.1-Aus 0.2\n\nOperative Date.........................................................Aus 0.3\n\nIntroduction\n\nScope of this Auditing Standard..................................................1\n\nMateriality in the Context of an Audit.............................................2-6\n\nEffective Date...............................................................7\n\nObjective..................................................................8\n\nDefinition..................................................................9\n\nRequirements\n\nDetermining Materiality and Performance Materiality When Planning the Audit............10-11\n\nRevision as the Audit Progresses..............................................12-13\n\nDocumentation..............................................................14\n\nApplication and Other Explanatory Material\n\nMateriality and Audit Risk.....................................................A1\n\nMateriality in the Context of an Audit.............................................A2\n\nDetermining Materiality and Performance Materiality When Planning the Audit..........A3-A13\n\nRevision as the Audit Progresses................................................A14\n\n  \n\n# COMPILATION DETAILS\n\n### Auditing Standard ASA 320 Materiality in Planning and Performing an Audit (as Amended)\n\nThis compilation takes into account amendments made up to and including 27 April 2022 and was prepared on 1 March 2023 by the Auditing and Assurance Standards Board (AUASB).\n\nThis compilation is not a separate Auditing Standard made by the AUASB. Instead, it is a representation of ASA 320 (October 2009) as amended by other Auditing Standards which are listed in the Table below.\n\n##### Table of Standards\n\n| Standard       | Date made       | Operative Date                                                         |\n| -------------- | --------------- | ---------------------------------------------------------------------- |\n| ASA 320 [A]    | 27 October 2009 | Financial reporting periods commencing on or after 1 January 2010      |\n| ASA 2011‑1 [B] | 27 June 2011    | Financial reporting periods commencing on or after 1 July 2011         |\n| ASA 2015‑1 [C] | 1 December 2015 | Financial reporting periods ending on or after 15 December 2016        |\n| ASA 2020‑1 [D] | 3 March 2020    | Financial reporting periods commencing on or after 15 December 2021[*] |\n| ASA 2022-1 [E] | 27 April 2022   | Financial reporting periods commencing on or after 15 December 2023    |\n\nLegislation History\n\n| Standard   | Registration Number | Registration Date | Commencement Date |\n| ---------- | ------------------- | ----------------- | ----------------- |\n| ASA 320    | F2009L04080         | 12 November 2009  | 13 November 2009  |\n| ASA 2011‑1 | F2011L01379         | 30 June 2011      | 1 July 2011       |\n| ASA 2015-1 | F2015L02032         | 16 December 2015  | 17 December 2015  |\n| ASA 2020-1 | F2020L00252         | 13 March 2020     | 14 December 2021  |\n| ASA 2022-1 | F2022L00712         | 19 May 2022       | 14 December 2023  |\n\n##### Table of Amendments\n\n| Paragraph affected               | How affected | By … [paragraph]         |\n| -------------------------------- | ------------ | ------------------------ |\n| Title Page                       | Amended      | ASA 2011-1 [31]          |\n| 6                                | Amended      | ASA 2015-1 [101]         |\n| Footnotes 3 and 4                | Addition     | ASA 2015-1 [102]         |\n| Aus A1.1 and related footnote *  | Deleted      | ASA 2015-1 [103]         |\n| Heading after paragraph A1       | Addition     | ASA 2015-1 [104]         |\n| A2                               | Addition     | ASA 2015-1 [105 and 107] |\n| Footnote 13                      | Addition     | ASA 2015-1 [106]         |\n| A11                              | Amended      | ASA 2015-1 [108]         |\n| Aus A10.1 and related footnote * | Deleted      | ASA 2015-1 [109]         |\n| Footnote 3                       | Amended      | ASA 2020-1 [67]          |\n| Footnote 13                      | Amended      | ASA 2020-1 [68]          |\n| 9                                | Amended      | ASA 2022-1 [30]          |\n| A13                              | Amended      | ASA 2022-1 [31]          |\n\n  \n\n## AUTHORITY STATEMENT\n\nAuditing Standard ASA 320 Materiality in Planning and Performing an Audit (as amended to 27 April 2022) is set out in paragraphs Aus 0.1 to A14.\n\nThis Auditing Standard is to be read in conjunction with ASA 101 Preamble to AUASB Standards, which sets out how AUASB Standards are to be understood, interpreted and applied. This Auditing Standard is to be read also in conjunction with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.\n\n##### Conformity with International Standards on Auditing\n\nThis Auditing Standard conforms with International Standard on Auditing ISA 320 Materiality in Planning and Performing an Audit issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard‑setting board of the International Federation of Accountants (IFAC).\n\nParagraphs that have been added to this Auditing Standard (and do not appear in the text of the equivalent ISA) are identified with the prefix “Aus”.\n\nCompliance with this Auditing Standard enables compliance with ISA 320.","sortOrder":4},{"sectionNumber":"Auditing Standard ASA 320 Materiality in","sectionType":"division","heading":"Auditing Standard ASA 320 Materiality in Planning and Performing an Audit (as Amended)","content":"### Auditing Standard ASA 320 Materiality in Planning and Performing an Audit (as Amended)\n\nThis compilation takes into account amendments made up to and including 27 April 2022 and was prepared on 1 March 2023 by the Auditing and Assurance Standards Board (AUASB).\n\nThis compilation is not a separate Auditing Standard made by the AUASB. Instead, it is a representation of ASA 320 (October 2009) as amended by other Auditing Standards which are listed in the Table below.","sortOrder":5},{"sectionNumber":"Table of Standards","sectionType":"section","heading":"Table of Standards","content":"##### Table of Standards\n\n| Standard       | Date made       | Operative Date                                                         |\n| -------------- | --------------- | ---------------------------------------------------------------------- |\n| ASA 320 [A]    | 27 October 2009 | Financial reporting periods commencing on or after 1 January 2010      |\n| ASA 2011‑1 [B] | 27 June 2011    | Financial reporting periods commencing on or after 1 July 2011         |\n| ASA 2015‑1 [C] | 1 December 2015 | Financial reporting periods ending on or after 15 December 2016        |\n| ASA 2020‑1 [D] | 3 March 2020    | Financial reporting periods commencing on or after 15 December 2021[*] |\n| ASA 2022-1 [E] | 27 April 2022   | Financial reporting periods commencing on or after 15 December 2023    |\n\nLegislation History\n\n| Standard   | Registration Number | Registration Date | Commencement Date |\n| ---------- | ------------------- | ----------------- | ----------------- |\n| ASA 320    | F2009L04080         | 12 November 2009  | 13 November 2009  |\n| ASA 2011‑1 | F2011L01379         | 30 June 2011      | 1 July 2011       |\n| ASA 2015-1 | F2015L02032         | 16 December 2015  | 17 December 2015  |\n| ASA 2020-1 | F2020L00252         | 13 March 2020     | 14 December 2021  |\n| ASA 2022-1 | F2022L00712         | 19 May 2022       | 14 December 2023  |","sortOrder":6},{"sectionNumber":"Table of Amendments","sectionType":"section","heading":"Table of Amendments","content":"##### Table of Amendments\n\n| Paragraph affected               | How affected | By … [paragraph]         |\n| -------------------------------- | ------------ | ------------------------ |\n| Title Page                       | Amended      | ASA 2011-1 [31]          |\n| 6                                | Amended      | ASA 2015-1 [101]         |\n| Footnotes 3 and 4                | Addition     | ASA 2015-1 [102]         |\n| Aus A1.1 and related footnote *  | Deleted      | ASA 2015-1 [103]         |\n| Heading after paragraph A1       | Addition     | ASA 2015-1 [104]         |\n| A2                               | Addition     | ASA 2015-1 [105 and 107] |\n| Footnote 13                      | Addition     | ASA 2015-1 [106]         |\n| A11                              | Amended      | ASA 2015-1 [108]         |\n| Aus A10.1 and related footnote * | Deleted      | ASA 2015-1 [109]         |\n| Footnote 3                       | Amended      | ASA 2020-1 [67]          |\n| Footnote 13                      | Amended      | ASA 2020-1 [68]          |\n| 9                                | Amended      | ASA 2022-1 [30]          |\n| A13                              | Amended      | ASA 2022-1 [31]          |\n\n  \n\n## AUTHORITY STATEMENT\n\nAuditing Standard ASA 320 Materiality in Planning and Performing an Audit (as amended to 27 April 2022) is set out in paragraphs Aus 0.1 to A14.\n\nThis Auditing Standard is to be read in conjunction with ASA 101 Preamble to AUASB Standards, which sets out how AUASB Standards are to be understood, interpreted and applied. This Auditing Standard is to be read also in conjunction with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.\n\n##### Conformity with International Standards on Auditing\n\nThis Auditing Standard conforms with International Standard on Auditing ISA 320 Materiality in Planning and Performing an Audit issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard‑setting board of the International Federation of Accountants (IFAC).\n\nParagraphs that have been added to this Auditing Standard (and do not appear in the text of the equivalent ISA) are identified with the prefix “Aus”.\n\nCompliance with this Auditing Standard enables compliance with ISA 320.","sortOrder":7},{"sectionNumber":"AUTHORITY STATEMENT","sectionType":"part","heading":"AUTHORITY STATEMENT","content":"## AUTHORITY STATEMENT\n\nAuditing Standard ASA 320 Materiality in Planning and Performing an Audit (as amended to 27 April 2022) is set out in paragraphs Aus 0.1 to A14.\n\nThis Auditing Standard is to be read in conjunction with ASA 101 Preamble to AUASB Standards, which sets out how AUASB Standards are to be understood, interpreted and applied. This Auditing Standard is to be read also in conjunction with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.","sortOrder":8},{"sectionNumber":"Conformity with International Standards ","sectionType":"section","heading":"Conformity with International Standards on Auditing","content":"##### Conformity with International Standards on Auditing\n\nThis Auditing Standard conforms with International Standard on Auditing ISA 320 Materiality in Planning and Performing an Audit issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard‑setting board of the International Federation of Accountants (IFAC).\n\nParagraphs that have been added to this Auditing Standard (and do not appear in the text of the equivalent ISA) are identified with the prefix “Aus”.\n\nCompliance with this Auditing Standard enables compliance with ISA 320.","sortOrder":9},{"sectionNumber":"Auditing Standard ASA 320","sectionType":"part","heading":"Auditing Standard ASA 320","content":"Auditing Standard ASA 320\n\nThe Auditing and Assurance Standards Board (AUASB) made Auditing Standard ASA 320 Materiality in Planning and Performing an Audit pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001, on 27 October 2009.\n\nThis compiled version of ASA 320 incorporates subsequent amendments contained in other Auditing Standards made by the AUASB up to and including 27 April 2022 (see Compilation Details).\n\n## Auditing Standard ASA 320\n\n### Materiality in Planning and Performing an Audit\n\n##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half-year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.\n\n##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]\n\n##### Introduction\n\n###### Scope of this Auditing Standard\n\n1.  This Auditing Standard deals with the auditor’s responsibility to apply the concept of materiality in planning and performing an audit of a financial report. ASA 450[\\[1\\]](#_ftn2) explains how materiality is applied in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial report.\n\n###### Materiality in the Context of an Audit\n\n1.  Financial reporting frameworks often discuss the concept of materiality in the context of the preparation and presentation of a financial report. Although financial reporting frameworks may discuss materiality in different terms, they generally explain that:\n\n-   Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report;","sortOrder":10},{"sectionNumber":"Materiality in Planning and Performing a","sectionType":"division","heading":"Materiality in Planning and Performing an Audit","content":"Auditing Standard ASA 320\n\nThe Auditing and Assurance Standards Board (AUASB) made Auditing Standard ASA 320 Materiality in Planning and Performing an Audit pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001, on 27 October 2009.\n\nThis compiled version of ASA 320 incorporates subsequent amendments contained in other Auditing Standards made by the AUASB up to and including 27 April 2022 (see Compilation Details).\n\n## Auditing Standard ASA 320\n\n### Materiality in Planning and Performing an Audit\n\n##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half-year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.\n\n##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]\n\n##### Introduction\n\n###### Scope of this Auditing Standard\n\n1.  This Auditing Standard deals with the auditor’s responsibility to apply the concept of materiality in planning and performing an audit of a financial report. ASA 450[\\[1\\]](#_ftn2) explains how materiality is applied in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial report.\n\n###### Materiality in the Context of an Audit\n\n1.  Financial reporting frameworks often discuss the concept of materiality in the context of the preparation and presentation of a financial report. Although financial reporting frameworks may discuss materiality in different terms, they generally explain that:\n\n-   Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report;","sortOrder":11},{"sectionNumber":"Application","sectionType":"section","heading":"Application","content":"##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half-year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.","sortOrder":12},{"sectionNumber":"Operative Date","sectionType":"section","heading":"Operative Date","content":"##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]","sortOrder":13},{"sectionNumber":"Introduction","sectionType":"section","heading":"Introduction","content":"Auditing Standard ASA 320\n\nThe Auditing and Assurance Standards Board (AUASB) made Auditing Standard ASA 320 Materiality in Planning and Performing an Audit pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001, on 27 October 2009.\n\nThis compiled version of ASA 320 incorporates subsequent amendments contained in other Auditing Standards made by the AUASB up to and including 27 April 2022 (see Compilation Details).\n\n## Auditing Standard ASA 320\n\n### Materiality in Planning and Performing an Audit\n\n##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half-year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.\n\n##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]\n\n##### Introduction\n\n###### Scope of this Auditing Standard\n\n1.  This Auditing Standard deals with the auditor’s responsibility to apply the concept of materiality in planning and performing an audit of a financial report. ASA 450[\\[1\\]](#_ftn2) explains how materiality is applied in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial report.\n\n###### Materiality in the Context of an Audit\n\n1.  Financial reporting frameworks often discuss the concept of materiality in the context of the preparation and presentation of a financial report. Although financial reporting frameworks may discuss materiality in different terms, they generally explain that:\n\n-   Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report;","sortOrder":14},{"sectionNumber":"Scope of this Auditing Standard","sectionType":"section","heading":"Scope of this Auditing Standard","content":"###### Scope of this Auditing Standard\n\n1.  This Auditing Standard deals with the auditor’s responsibility to apply the concept of materiality in planning and performing an audit of a financial report. ASA 450[\\[1\\]](#_ftn2) explains how materiality is applied in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial report.","sortOrder":15},{"sectionNumber":"Materiality in the Context of an Audit","sectionType":"section","heading":"Materiality in the Context of an Audit","content":"###### Materiality in the Context of an Audit\n\n1.  Financial reporting frameworks often discuss the concept of materiality in the context of the preparation and presentation of a financial report. Although financial reporting frameworks may discuss materiality in different terms, they generally explain that:\n\n-   Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report;","sortOrder":16},{"sectionNumber":"Effective Date","sectionType":"section","heading":"Effective Date","content":"###### Effective Date\n\n1.  \\[Deleted by the AUASB. Refer Aus 0.3\\]","sortOrder":17},{"sectionNumber":"Objective","sectionType":"section","heading":"Objective","content":"##### Objective\n\n1.  The objective of the auditor is to apply the concept of materiality appropriately in planning and performing the audit","sortOrder":18},{"sectionNumber":"Definition","sectionType":"section","heading":"Definition","content":"##### Definition\n\n1.  For the purposes of this Auditing Standard, the following terms have the meanings attributed below:\n    1.  Performance materiality means the amount or amounts set by the auditor at less than materiality for the financial report as a whole to reduce aggregation risk to an appropriately low level. 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.\n    2.  Aggregation risk means the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial report as a whole.","sortOrder":19},{"sectionNumber":"Requirements","sectionType":"section","heading":"Requirements","content":"-   Judgements about materiality are made in light of surrounding circumstances, and are affected by the size or nature of a misstatement, or a combination of both; and\n-   Judgements about matters that are material to users of the financial report are based on a consideration of the common financial information needs of users as a group.[\\[2\\]](#_ftn3) The possible effect of misstatements on specific individual users, whose needs may vary widely, is not considered.\n\n1.  Such a discussion, if present in the applicable financial reporting framework, provides a frame of reference to the auditor in determining materiality for the audit. If the applicable financial reporting framework does not include a discussion of the concept of materiality, the characteristics referred to in paragraph 2 of this Auditing Standard provide the auditor with such a frame of reference.\n2.  The auditor’s determination of materiality is a matter of professional judgement, and is affected by the auditor’s perception of the financial information needs of users of the financial report. In this context, it is reasonable for the auditor to assume that users:\n    1.  Have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information in the financial report with reasonable diligence;\n    2.  Understand that the financial report is prepared, presented and audited to levels of materiality;\n    3.  Recognise the uncertainties inherent in the measurement of amounts based on the use of estimates, judgement and the consideration of future events; and\n    4.  Make reasonable economic decisions on the basis of the information in the financial report.\n3.  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 report and in forming the opinion in the auditor’s report. (Ref: Para. A1)\n4.  In planning the audit, the auditor makes judgements about misstatements that will be considered material. These judgements provide a basis for:\n    1.  Determining the nature, timing and extent of risk assessment procedures;\n    2.  Identifying and assessing the risks of material misstatement; [\\[3\\]](#_ftn4) and\n    3.  Determining the nature, timing and extent of further audit procedures.\n\nThe materiality determined when planning the audit does not necessarily establish an amount below which uncorrected misstatements, individually or in the aggregate, will always be evaluated as immaterial. The circumstances related to some misstatements may cause the auditor to evaluate them as material even if they are below materiality. It is not practicable to design audit procedures to detect all misstatements that could be material solely because of their nature. However, consideration of the nature of potential misstatements in disclosures is relevant to the design of audit procedures to address risks of material misstatement. In addition, when evaluating the effect on the financial report of all uncorrected misstatements, the auditor considers not only the size but also the nature of uncorrected misstatements, and the particular circumstances of their occurrence.[\\[4\\]](#_ftn5) (Ref: Para. A2 )\n\n###### Effective Date\n\n1.  \\[Deleted by the AUASB. Refer Aus 0.3\\]\n\n##### Objective\n\n1.  The objective of the auditor is to apply the concept of materiality appropriately in planning and performing the audit\n\n##### Definition\n\n1.  For the purposes of this Auditing Standard, the following terms have the meanings attributed below:\n    1.  Performance materiality means the amount or amounts set by the auditor at less than materiality for the financial report as a whole to reduce aggregation risk to an appropriately low level. 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.\n    2.  Aggregation risk means the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial report as a whole.\n\n##### Requirements\n\n###### Determining Materiality and Performance Materiality When Planning the Audit\n\n1.  When establishing the overall audit strategy, the auditor shall determine materiality for the financial report 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 materiality for the financial report as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report, the auditor shall also determine the materiality level or levels to be applied to those particular classes of transactions, account balances or disclosures. (Ref: Para. A3-A12)\n2.  The auditor shall determine performance materiality for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures. (Ref: Para. A13)\n\n###### Revision as the Audit Progresses\n\n1.  The auditor shall revise materiality for the financial report 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. (Ref: Para. A14)\n2.  If the auditor concludes that a lower materiality for the financial report as a whole (and, if applicable, materiality level or levels for particular classes of transactions, account balances or disclosures) than that initially determined is appropriate, the auditor shall determine whether it is necessary to revise performance materiality, and whether the nature, timing and extent of the further audit procedures remain appropriate.\n\n###### Documentation\n\n1.  The auditor shall include in the audit documentation the following amounts and the factors considered in their determination:[\\[5\\]](#_ftn6)\n    1.  Materiality for the financial report as a whole (see paragraph 10 of this Auditing Standard);\n    2.  If applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures (see paragraph 10 of this Auditing Standard);\n    3.  Performance materiality (see paragraph 11 of this Auditing Standard); and\n    4.  Any revision of (a)-(c) as the audit progressed (see paragraphs 12-13 of this Auditing Standard).\n\n\\* \\* \\*\n\n##### Application and Other Explanatory Material\n\n###### Materiality and Audit Risk (Ref: Para. 5)\n\n1.  In conducting an audit of a financial report, the overall objectives of the auditor are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial report is prepared, in all material respects, in accordance with an applicable financial reporting framework; and to report on the financial report, and communicate as required by the Australian Auditing Standards, in accordance with the auditor’s findings.[\\[6\\]](#_ftn7) The auditor obtains reasonable assurance by obtaining sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.[\\[7\\]](#_ftn8) Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial report is materially misstated. Audit risk is a function of the risks of material misstatement and detection risk.[\\[8\\]](#_ftn9) Materiality and audit risk are considered throughout the audit, in particular, when:\n    1.  Identifying and assessing the risks of material misstatement;[\\[9\\]](#_ftn10)\n    2.  Determining the nature, timing and extent of further audit procedures;[\\[10\\]](#_ftn11) and\n    3.  Evaluating the effect of uncorrected misstatements, if any, on the financial report[\\[11\\]](#_ftn12) and in forming the opinion in the auditor’s report.[\\[12\\]](#_ftn13)\n\nMateriality in the Context of an Audit (Ref: Para. 6)\n\n1.  Identifying and assessing the risks of material misstatement involves the use of professional judgement to identify those classes of transactions, account balances and disclosures, including qualitative disclosures, the misstatement of which could be material (i.e., in general, misstatements are considered to be material if they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report as a whole). When considering whether misstatements in qualitative disclosures could be material, the auditor may identify relevant factors such as:\n\n-   The circumstances of the entity for the period (for example, the entity may have undertaken a significant business combination during the period).\n-   The applicable financial reporting framework, including changes therein (for example, a new financial reporting standard may require new qualitative disclosures that are significant to the entity).\n-   Qualitative disclosures that are important to users of the financial report because of the nature of an entity (for example, liquidity risk disclosures may be important to users of the financial report for a financial institution).[\\[13\\]](#_ftn14)\n\n###### Determining Materiality and Performance Materiality When Planning the Audit\n\nConsiderations Specific to Public Sector Entities (Ref: Para. 10)\n\n1.  In the case of a public sector entity, legislators and regulators are often the primary users of its financial report. Furthermore, the financial report may be used to make decisions other than economic decisions. The determination of materiality for the financial report as a whole (and, if applicable, materiality level or levels for particular classes of transactions, account balances or disclosures) in an audit of the financial report of a public sector entity is therefore influenced by law, regulation or other authority, and by the financial information needs of legislators and the public in relation to public sector programs.\n\nUse of Benchmarks in Determining Materiality for the Financial Report as a Whole (Ref: Para. 10)\n\n1.  Determining materiality involves the exercise of professional judgement. A percentage is often applied to a chosen benchmark as a starting point in determining materiality for the financial report as a whole. Factors that may affect the identification of an appropriate benchmark include the following:\n\n-   The elements of the financial report (for example, assets, liabilities, equity, revenue, expenses);\n-   Whether there are items on which the attention of the users of the particular entity’s financial report tends to be focused (for example, for the purpose of evaluating financial performance users may tend to focus on profit, revenue or net assets);\n-   The nature of the entity, where the entity is in its life cycle, and the industry and economic environment in which the entity operates;\n-   The entity’s ownership structure and the way it is financed (for example, if an entity is financed solely by debt rather than equity, users may put more emphasis on assets, and claims on them, than on the entity’s earnings); and\n-   The relative volatility of the benchmark.\n\n1.  Examples of benchmarks that may be appropriate, depending on the circumstances of the entity, include categories of reported income such as profit before tax, total revenue, gross profit and total expenses, total equity or net asset value. Profit before tax from continuing operations is often used for profit-oriented entities. When profit before tax from continuing operations is volatile, other benchmarks may be more appropriate, such as gross profit or total revenues.\n2.  In relation to the chosen benchmark, relevant financial data ordinarily includes prior periods’ financial results and financial positions, the period-to-date financial results and financial position, and budgets or forecasts for the current period, adjusted for significant changes in the circumstances of the entity (for example, a significant business acquisition) and relevant changes of conditions in the industry or economic environment in which the entity operates. For example, when, as a starting point, materiality for the financial report as a whole is determined for a particular entity based on a percentage of profit before tax from continuing operations, circumstances that give rise to an exceptional decrease or increase in such profit may lead the auditor to conclude that materiality for the financial report as a whole is more appropriately determined using a normalised profit before tax from continuing operations figure based on past results.\n3.  Materiality relates to the financial report on which the auditor is reporting. Where the financial report is prepared for a financial reporting period of more or less than twelve months, such as may be the case for a new entity or a change in the financial reporting period, materiality relates to the financial report prepared for that financial reporting period.\n4.  Determining a percentage to be applied to a chosen benchmark involves the exercise of professional judgement. There is a relationship between the percentage and the chosen benchmark, such that a percentage applied to profit before tax from continuing operations will normally be higher than a percentage applied to total revenue. For example, the auditor may consider five percent of profit before tax from continuing operations to be appropriate for a profit-oriented entity in a manufacturing industry, while the auditor may consider one percent of total revenues or total expenses to be appropriate for a not-for-profit entity. Higher or lower percentages, however, may be deemed appropriate in the circumstances.\n\nConsiderations Specific to Small Entities\n\n1.  When an entity’s profit before tax from continuing operations is consistently nominal, as might be the case for an owner-managed business where the owner takes much of the profit before tax in the form of remuneration, a benchmark such as profit before remuneration and tax may be more relevant.\n\nConsiderations Specific to Public Sector Entities\n\n1.  In an audit of a public sector entity, total cost or net cost (expenses less revenues or expenditure less receipts) may be appropriate benchmarks for program activities. Where a public sector entity has custody of public assets, assets may be an appropriate benchmark.\n\nMateriality Level or Levels for Particular Classes of Transactions, Account Balances or Disclosures (Ref: Para. 10)\n\n1.  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 report as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report include the following:\n\n-   Whether law, regulation or the applicable financial reporting framework affect users’ expectations regarding the measurement or disclosure of certain items (for example, related party transactions the remuneration of management and those charged with governance, and sensitivity analysis for fair value accounting estimates with high estimation uncertainty).\n-   The key disclosures in relation to the industry in which the entity operates (for example, research and development costs for a pharmaceutical company).\n-   Whether attention is focused on a particular aspect of the entity’s business that is separately disclosed in the financial report (for example disclosures about segments or a significant business combination).\n\n1.  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.\n\nPerformance Materiality (Ref: Para. 11)\n\n1.  Planning the audit solely to detect individually material misstatements overlooks the fact that the aggregate of individually immaterial misstatements may cause the financial report to be materially misstated, and leaves no margin for possible undetected misstatements. Performance materiality (which, as defined, is one or more amounts) is set at less than materiality for the financial report as a whole to reduce aggregation risk to an appropriately low level. Similarly, performance materiality relating to a materiality level determined for a particular class of transactions, account balance or disclosure is set to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in that particular class of transactions, account balance or disclosure exceeds the materiality level for that particular class of transactions, account balance or disclosure. The determination of performance materiality is not a simple mechanical calculation and involves the exercise of professional judgement. It is affected by the auditor’s understanding of the entity, updated during the performance of the risk assessment procedures; and the nature and extent of misstatements identified in previous audits and thereby the auditor’s expectations in relation to misstatements in the current period.\n\n###### Revision as the Audit Progresses (Ref: Para. 12)\n\n1.  Materiality for the financial report as a whole (and, if applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures) may need to be revised as a result of a change in circumstances that occurred during the audit (for example, a decision to dispose of a major part of the entity’s business), new information, or a change in the auditor’s understanding of the entity and its operations as a result of performing further audit procedures. For example, if during the audit it appears as though actual financial results are likely to be substantially different from the anticipated period end financial results that were used initially to determine materiality for the financial report as a whole, the auditor revises that materiality.","sortOrder":20},{"sectionNumber":"Determining Materiality and Performance ","sectionType":"section","heading":"Determining Materiality and Performance Materiality When Planning the Audit","content":"###### Determining Materiality and Performance Materiality When Planning the Audit\n\n1.  When establishing the overall audit strategy, the auditor shall determine materiality for the financial report 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 materiality for the financial report as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report, the auditor shall also determine the materiality level or levels to be applied to those particular classes of transactions, account balances or disclosures. (Ref: Para. A3-A12)\n2.  The auditor shall determine performance materiality for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures. (Ref: Para. A13)","sortOrder":21},{"sectionNumber":"Revision as the Audit Progresses","sectionType":"section","heading":"Revision as the Audit Progresses","content":"###### Revision as the Audit Progresses\n\n1.  The auditor shall revise materiality for the financial report 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. (Ref: Para. A14)\n2.  If the auditor concludes that a lower materiality for the financial report as a whole (and, if applicable, materiality level or levels for particular classes of transactions, account balances or disclosures) than that initially determined is appropriate, the auditor shall determine whether it is necessary to revise performance materiality, and whether the nature, timing and extent of the further audit procedures remain appropriate.","sortOrder":22},{"sectionNumber":"Documentation","sectionType":"section","heading":"Documentation","content":"###### Documentation\n\n1.  The auditor shall include in the audit documentation the following amounts and the factors considered in their determination:[\\[5\\]](#_ftn6)\n    1.  Materiality for the financial report as a whole (see paragraph 10 of this Auditing Standard);\n    2.  If applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures (see paragraph 10 of this Auditing Standard);\n    3.  Performance materiality (see paragraph 11 of this Auditing Standard); and\n    4.  Any revision of (a)-(c) as the audit progressed (see paragraphs 12-13 of this Auditing Standard).\n\n\\* \\* \\*","sortOrder":23},{"sectionNumber":"Application and Other Explanatory Materi","sectionType":"section","heading":"Application and Other Explanatory Material","content":"-   Judgements about materiality are made in light of surrounding circumstances, and are affected by the size or nature of a misstatement, or a combination of both; and\n-   Judgements about matters that are material to users of the financial report are based on a consideration of the common financial information needs of users as a group.[\\[2\\]](#_ftn3) The possible effect of misstatements on specific individual users, whose needs may vary widely, is not considered.\n\n1.  Such a discussion, if present in the applicable financial reporting framework, provides a frame of reference to the auditor in determining materiality for the audit. If the applicable financial reporting framework does not include a discussion of the concept of materiality, the characteristics referred to in paragraph 2 of this Auditing Standard provide the auditor with such a frame of reference.\n2.  The auditor’s determination of materiality is a matter of professional judgement, and is affected by the auditor’s perception of the financial information needs of users of the financial report. In this context, it is reasonable for the auditor to assume that users:\n    1.  Have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information in the financial report with reasonable diligence;\n    2.  Understand that the financial report is prepared, presented and audited to levels of materiality;\n    3.  Recognise the uncertainties inherent in the measurement of amounts based on the use of estimates, judgement and the consideration of future events; and\n    4.  Make reasonable economic decisions on the basis of the information in the financial report.\n3.  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 report and in forming the opinion in the auditor’s report. (Ref: Para. A1)\n4.  In planning the audit, the auditor makes judgements about misstatements that will be considered material. These judgements provide a basis for:\n    1.  Determining the nature, timing and extent of risk assessment procedures;\n    2.  Identifying and assessing the risks of material misstatement; [\\[3\\]](#_ftn4) and\n    3.  Determining the nature, timing and extent of further audit procedures.\n\nThe materiality determined when planning the audit does not necessarily establish an amount below which uncorrected misstatements, individually or in the aggregate, will always be evaluated as immaterial. The circumstances related to some misstatements may cause the auditor to evaluate them as material even if they are below materiality. It is not practicable to design audit procedures to detect all misstatements that could be material solely because of their nature. However, consideration of the nature of potential misstatements in disclosures is relevant to the design of audit procedures to address risks of material misstatement. In addition, when evaluating the effect on the financial report of all uncorrected misstatements, the auditor considers not only the size but also the nature of uncorrected misstatements, and the particular circumstances of their occurrence.[\\[4\\]](#_ftn5) (Ref: Para. A2 )\n\n###### Effective Date\n\n1.  \\[Deleted by the AUASB. Refer Aus 0.3\\]\n\n##### Objective\n\n1.  The objective of the auditor is to apply the concept of materiality appropriately in planning and performing the audit\n\n##### Definition\n\n1.  For the purposes of this Auditing Standard, the following terms have the meanings attributed below:\n    1.  Performance materiality means the amount or amounts set by the auditor at less than materiality for the financial report as a whole to reduce aggregation risk to an appropriately low level. 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.\n    2.  Aggregation risk means the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial report as a whole.\n\n##### Requirements\n\n###### Determining Materiality and Performance Materiality When Planning the Audit\n\n1.  When establishing the overall audit strategy, the auditor shall determine materiality for the financial report 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 materiality for the financial report as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report, the auditor shall also determine the materiality level or levels to be applied to those particular classes of transactions, account balances or disclosures. (Ref: Para. A3-A12)\n2.  The auditor shall determine performance materiality for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures. (Ref: Para. A13)\n\n###### Revision as the Audit Progresses\n\n1.  The auditor shall revise materiality for the financial report 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. (Ref: Para. A14)\n2.  If the auditor concludes that a lower materiality for the financial report as a whole (and, if applicable, materiality level or levels for particular classes of transactions, account balances or disclosures) than that initially determined is appropriate, the auditor shall determine whether it is necessary to revise performance materiality, and whether the nature, timing and extent of the further audit procedures remain appropriate.\n\n###### Documentation\n\n1.  The auditor shall include in the audit documentation the following amounts and the factors considered in their determination:[\\[5\\]](#_ftn6)\n    1.  Materiality for the financial report as a whole (see paragraph 10 of this Auditing Standard);\n    2.  If applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures (see paragraph 10 of this Auditing Standard);\n    3.  Performance materiality (see paragraph 11 of this Auditing Standard); and\n    4.  Any revision of (a)-(c) as the audit progressed (see paragraphs 12-13 of this Auditing Standard).\n\n\\* \\* \\*\n\n##### Application and Other Explanatory Material\n\n###### Materiality and Audit Risk (Ref: Para. 5)\n\n1.  In conducting an audit of a financial report, the overall objectives of the auditor are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial report is prepared, in all material respects, in accordance with an applicable financial reporting framework; and to report on the financial report, and communicate as required by the Australian Auditing Standards, in accordance with the auditor’s findings.[\\[6\\]](#_ftn7) The auditor obtains reasonable assurance by obtaining sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.[\\[7\\]](#_ftn8) Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial report is materially misstated. Audit risk is a function of the risks of material misstatement and detection risk.[\\[8\\]](#_ftn9) Materiality and audit risk are considered throughout the audit, in particular, when:\n    1.  Identifying and assessing the risks of material misstatement;[\\[9\\]](#_ftn10)\n    2.  Determining the nature, timing and extent of further audit procedures;[\\[10\\]](#_ftn11) and\n    3.  Evaluating the effect of uncorrected misstatements, if any, on the financial report[\\[11\\]](#_ftn12) and in forming the opinion in the auditor’s report.[\\[12\\]](#_ftn13)\n\nMateriality in the Context of an Audit (Ref: Para. 6)\n\n1.  Identifying and assessing the risks of material misstatement involves the use of professional judgement to identify those classes of transactions, account balances and disclosures, including qualitative disclosures, the misstatement of which could be material (i.e., in general, misstatements are considered to be material if they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report as a whole). When considering whether misstatements in qualitative disclosures could be material, the auditor may identify relevant factors such as:\n\n-   The circumstances of the entity for the period (for example, the entity may have undertaken a significant business combination during the period).\n-   The applicable financial reporting framework, including changes therein (for example, a new financial reporting standard may require new qualitative disclosures that are significant to the entity).\n-   Qualitative disclosures that are important to users of the financial report because of the nature of an entity (for example, liquidity risk disclosures may be important to users of the financial report for a financial institution).[\\[13\\]](#_ftn14)\n\n###### Determining Materiality and Performance Materiality When Planning the Audit\n\nConsiderations Specific to Public Sector Entities (Ref: Para. 10)\n\n1.  In the case of a public sector entity, legislators and regulators are often the primary users of its financial report. Furthermore, the financial report may be used to make decisions other than economic decisions. The determination of materiality for the financial report as a whole (and, if applicable, materiality level or levels for particular classes of transactions, account balances or disclosures) in an audit of the financial report of a public sector entity is therefore influenced by law, regulation or other authority, and by the financial information needs of legislators and the public in relation to public sector programs.\n\nUse of Benchmarks in Determining Materiality for the Financial Report as a Whole (Ref: Para. 10)\n\n1.  Determining materiality involves the exercise of professional judgement. A percentage is often applied to a chosen benchmark as a starting point in determining materiality for the financial report as a whole. Factors that may affect the identification of an appropriate benchmark include the following:\n\n-   The elements of the financial report (for example, assets, liabilities, equity, revenue, expenses);\n-   Whether there are items on which the attention of the users of the particular entity’s financial report tends to be focused (for example, for the purpose of evaluating financial performance users may tend to focus on profit, revenue or net assets);\n-   The nature of the entity, where the entity is in its life cycle, and the industry and economic environment in which the entity operates;\n-   The entity’s ownership structure and the way it is financed (for example, if an entity is financed solely by debt rather than equity, users may put more emphasis on assets, and claims on them, than on the entity’s earnings); and\n-   The relative volatility of the benchmark.\n\n1.  Examples of benchmarks that may be appropriate, depending on the circumstances of the entity, include categories of reported income such as profit before tax, total revenue, gross profit and total expenses, total equity or net asset value. Profit before tax from continuing operations is often used for profit-oriented entities. When profit before tax from continuing operations is volatile, other benchmarks may be more appropriate, such as gross profit or total revenues.\n2.  In relation to the chosen benchmark, relevant financial data ordinarily includes prior periods’ financial results and financial positions, the period-to-date financial results and financial position, and budgets or forecasts for the current period, adjusted for significant changes in the circumstances of the entity (for example, a significant business acquisition) and relevant changes of conditions in the industry or economic environment in which the entity operates. For example, when, as a starting point, materiality for the financial report as a whole is determined for a particular entity based on a percentage of profit before tax from continuing operations, circumstances that give rise to an exceptional decrease or increase in such profit may lead the auditor to conclude that materiality for the financial report as a whole is more appropriately determined using a normalised profit before tax from continuing operations figure based on past results.\n3.  Materiality relates to the financial report on which the auditor is reporting. Where the financial report is prepared for a financial reporting period of more or less than twelve months, such as may be the case for a new entity or a change in the financial reporting period, materiality relates to the financial report prepared for that financial reporting period.\n4.  Determining a percentage to be applied to a chosen benchmark involves the exercise of professional judgement. There is a relationship between the percentage and the chosen benchmark, such that a percentage applied to profit before tax from continuing operations will normally be higher than a percentage applied to total revenue. For example, the auditor may consider five percent of profit before tax from continuing operations to be appropriate for a profit-oriented entity in a manufacturing industry, while the auditor may consider one percent of total revenues or total expenses to be appropriate for a not-for-profit entity. Higher or lower percentages, however, may be deemed appropriate in the circumstances.\n\nConsiderations Specific to Small Entities\n\n1.  When an entity’s profit before tax from continuing operations is consistently nominal, as might be the case for an owner-managed business where the owner takes much of the profit before tax in the form of remuneration, a benchmark such as profit before remuneration and tax may be more relevant.\n\nConsiderations Specific to Public Sector Entities\n\n1.  In an audit of a public sector entity, total cost or net cost (expenses less revenues or expenditure less receipts) may be appropriate benchmarks for program activities. Where a public sector entity has custody of public assets, assets may be an appropriate benchmark.\n\nMateriality Level or Levels for Particular Classes of Transactions, Account Balances or Disclosures (Ref: Para. 10)\n\n1.  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 report as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report include the following:\n\n-   Whether law, regulation or the applicable financial reporting framework affect users’ expectations regarding the measurement or disclosure of certain items (for example, related party transactions the remuneration of management and those charged with governance, and sensitivity analysis for fair value accounting estimates with high estimation uncertainty).\n-   The key disclosures in relation to the industry in which the entity operates (for example, research and development costs for a pharmaceutical company).\n-   Whether attention is focused on a particular aspect of the entity’s business that is separately disclosed in the financial report (for example disclosures about segments or a significant business combination).\n\n1.  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.\n\nPerformance Materiality (Ref: Para. 11)\n\n1.  Planning the audit solely to detect individually material misstatements overlooks the fact that the aggregate of individually immaterial misstatements may cause the financial report to be materially misstated, and leaves no margin for possible undetected misstatements. Performance materiality (which, as defined, is one or more amounts) is set at less than materiality for the financial report as a whole to reduce aggregation risk to an appropriately low level. Similarly, performance materiality relating to a materiality level determined for a particular class of transactions, account balance or disclosure is set to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in that particular class of transactions, account balance or disclosure exceeds the materiality level for that particular class of transactions, account balance or disclosure. The determination of performance materiality is not a simple mechanical calculation and involves the exercise of professional judgement. It is affected by the auditor’s understanding of the entity, updated during the performance of the risk assessment procedures; and the nature and extent of misstatements identified in previous audits and thereby the auditor’s expectations in relation to misstatements in the current period.\n\n###### Revision as the Audit Progresses (Ref: Para. 12)\n\n1.  Materiality for the financial report as a whole (and, if applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures) may need to be revised as a result of a change in circumstances that occurred during the audit (for example, a decision to dispose of a major part of the entity’s business), new information, or a change in the auditor’s understanding of the entity and its operations as a result of performing further audit procedures. For example, if during the audit it appears as though actual financial results are likely to be substantially different from the anticipated period end financial results that were used initially to determine materiality for the financial report as a whole, the auditor revises that materiality.","sortOrder":24},{"sectionNumber":"Materiality and Audit Risk (Ref: Para. 5","sectionType":"section","heading":"Materiality and Audit Risk (Ref: Para. 5)","content":"###### Materiality and Audit Risk (Ref: Para. 5)\n\n1.  In conducting an audit of a financial report, the overall objectives of the auditor are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial report is prepared, in all material respects, in accordance with an applicable financial reporting framework; and to report on the financial report, and communicate as required by the Australian Auditing Standards, in accordance with the auditor’s findings.[\\[6\\]](#_ftn7) The auditor obtains reasonable assurance by obtaining sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.[\\[7\\]](#_ftn8) Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial report is materially misstated. Audit risk is a function of the risks of material misstatement and detection risk.[\\[8\\]](#_ftn9) Materiality and audit risk are considered throughout the audit, in particular, when:\n    1.  Identifying and assessing the risks of material misstatement;[\\[9\\]](#_ftn10)\n    2.  Determining the nature, timing and extent of further audit procedures;[\\[10\\]](#_ftn11) and\n    3.  Evaluating the effect of uncorrected misstatements, if any, on the financial report[\\[11\\]](#_ftn12) and in forming the opinion in the auditor’s report.[\\[12\\]](#_ftn13)\n\nMateriality in the Context of an Audit (Ref: Para. 6)\n\n1.  Identifying and assessing the risks of material misstatement involves the use of professional judgement to identify those classes of transactions, account balances and disclosures, including qualitative disclosures, the misstatement of which could be material (i.e., in general, misstatements are considered to be material if they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report as a whole). When considering whether misstatements in qualitative disclosures could be material, the auditor may identify relevant factors such as:\n\n-   The circumstances of the entity for the period (for example, the entity may have undertaken a significant business combination during the period).\n-   The applicable financial reporting framework, including changes therein (for example, a new financial reporting standard may require new qualitative disclosures that are significant to the entity).\n-   Qualitative disclosures that are important to users of the financial report because of the nature of an entity (for example, liquidity risk disclosures may be important to users of the financial report for a financial institution).[\\[13\\]](#_ftn14)","sortOrder":25},{"sectionNumber":"Revision as the Audit Progresses (Ref: P","sectionType":"section","heading":"Revision as the Audit Progresses (Ref: Para. 12)","content":"###### Revision as the Audit Progresses (Ref: Para. 12)\n\n1.  Materiality for the financial report as a whole (and, if applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures) may need to be revised as a result of a change in circumstances that occurred during the audit (for example, a decision to dispose of a major part of the entity’s business), new information, or a change in the auditor’s understanding of the entity and its operations as a result of performing further audit procedures. For example, if during the audit it appears as though actual financial results are likely to be substantially different from the anticipated period end financial results that were used initially to determine materiality for the financial report as a whole, the auditor revises that materiality.","sortOrder":27}],"analysis":{"flash_summary_failed":{"failed":true,"reason":"A positive credit balance is required for all requests, including BYOK, so fallback providers remain available. Add credits at https://vercel.com/d?to=%2F%5Bteam%5D%2F%7E%2Fai%3Fmodal%3Dtop-up to continue.","source":"analysis-cron"},"kimi_summary":{"content_quality":"ok","complexity_score":4,"scope_assessment":{"changed":false,"description":"The legislation remains focused on its original purpose: establishing how auditors should apply the concept of materiality when planning and performing audits. While amendments have been made over time (in 2011, 2015, 2020, and 2022), these appear to be refinements and updates rather than expansions into new areas. The core scope — materiality determination, performance materiality, and documentation — has remained consistent since the original 2009 standard."},"complexity_factors":["Multiple defined terms including 'performance materiality' and 'aggregation risk' (2 key definitions)","Cross-references to other auditing standards (ASA 101, ASA 200, ASA 450)","Conditional requirements based on entity type (public sector vs private sector vs small entities)","Professional judgement required throughout — no fixed percentages or mechanical calculations permitted","Dual-layer materiality structure (overall materiality + performance materiality + specific class-level materiality)","Requirement to revise thresholds mid-audit based on new information","Extensive application guidance (paragraphs A1-A14) providing examples and considerations but not hard rules"],"plain_english_summary":"ASA 320 guides auditors on judging what misstatements are “material” when planning and performing audits of financial statements. It requires setting and documenting overall materiality, lower performance materiality for testing and sensitive areas, and revising thresholds if circumstances change. Applying to audits under the Corporations Act and other engagements, it shapes the scope of testing and the reliability of the auditor’s opinion—balancing sufficient scrutiny against unnecessary work."},"flash_summary":{"complexity_score":6,"scope_assessment":{"changed":false,"description":"The core scope remains the same as the original ASA 320: it sets auditor responsibilities for applying materiality when planning and performing audits. Subsequent amendments (listed in the compilation details) refine application guidance (additional Aus paragraphs), add or clarify considerations for public sector and small entities, update operative dates and footnotes, and amend some explanatory paragraphs, but do not materially broaden the standard’s purpose. The standard continues to require setting and documenting materiality and performance materiality, revising them as needed, and using them to design audit procedures (Requirements paras 10–14)."},"complexity_factors":["Multiple cross-references to other AUASB standards (ASA 101, ASA 200, ASA 450) and to application material (A1–A14).","Several amendments and Aus paragraphs incorporated (compilation includes amendments to 27 April 2022) creating versioning complexity.","Defined terms with knock‑on effects: 'performance materiality' and 'aggregation risk' (Definition paras).","Conditional logic for different entity types: public sector, small entities, profit‑oriented vs not‑for‑profit (Application A10–A11).","Multiple decision points and judgement calls (choosing benchmark, percentage, setting multiple materiality levels).","Documentation and revision requirements introduce temporal complexity (initial setting, possible revision during audit, documentation of revisions) (paras 12–14).","Extensive illustrative and explanatory material (A3–A13) that auditors must reconcile with operative requirements.","Benchmarks and example percentages are contextual rather than prescriptive, increasing interpretive burden on auditors."],"plain_english_summary":"**What this standard does (mechanically)**\n\n- Requires auditors to decide, document and use a materiality level when planning and performing an audit of a financial report (see Aus 0.1; Requirements paras 10–14).\n- Requires auditors to set one or more levels of *performance materiality* (a lower threshold than overall materiality) to reduce the risk that many small misstatements add up to a material misstatement (Definition; para 11).\n- Requires auditors to revise those amounts if information obtained during the audit would have led to a different initial determination (paras 12–13).\n- Requires specific documentation of: the overall materiality amount, any specific materiality levels for particular classes of transactions/accounts/disclosures, performance materiality and any revisions (Documentation para 14).\n\n**Who this affects**\n\n- Auditors and audit firms: they must set, use and record materiality and performance materiality and adjust audit procedures accordingly (Requirements paras 10–14).\n- Entities being audited (management and those charged with governance): the auditor’s materiality judgements influence the nature, timing and extent of audit work and therefore can affect audit cost and the likelihood that particular misstatements are checked or corrected (Ref: para 4 and Application material).\n- Users of financial reports (investors, creditors, regulators, legislators for public sector entities): the standard frames which misstatements are likely to be caught and reported as material (para 1; Application to public sector is discussed in A10).\n\n**Key definitions in plain language**\n\n- Materiality: the threshold at which a misstatement (or combined misstatements) could reasonably influence the economic decisions of users relying on the financial report (Intro and para 2).\n- Performance materiality: one or more amounts set below overall materiality to reduce the risk that undetected or uncorrected misstatements aggregate to become material (Definition; para 11).\n- Aggregation risk: the risk that the sum of undetected and uncorrected misstatements exceeds the overall materiality (Definition).\n\n**Why it matters (official claim and practical implications)**\n\n- Official claim: the standard’s objective is to make auditors apply materiality consistently when planning and performing audits so that audit effort focuses on matters that could influence users’ decisions (Objective para; Ref paras A1–A2).\n\n- Practical implications and trade‑offs:\n  - Who decides: auditors exercise professional judgement to choose benchmarks (profit, revenue, assets, etc.) and percentages as starting points (Use of benchmarks A10–A12). That discretion shapes audit scope.\n  - Who pays: entities ultimately bear audit fees. More conservative materiality/performance materiality usually means more audit work (and cost); higher thresholds reduce audit effort but increase the chance material misstatements are undetected.\n  - Behaviour changes: auditors will target testing where their materiality analysis indicates the greatest risk; management may prioritise fixes in areas where misstatements would exceed auditor materiality thresholds.\n  - Compliance burden: the standard mandates documentation (para 14) and ongoing reassessment (paras 12–13), increasing audit file size and procedural steps.\n  - Implementation risk and auditor discretion: because the determinations are judgement‑based and benchmark choices vary by entity type (small business, not‑for‑profit, public sector), application can be inconsistent across audits (Use of benchmarks A10–A12; Considerations for public sector and small entities).\n  - Concentrated vs diffuse effects: users benefit from targeted audit effort and clearer expectations about what is checked; costs are borne by audited entities as higher audit complexity or tighter performance materiality increases work.\n  - Potential incentive effects: the standard does not fix numerical thresholds, so auditors could (intentionally or not) choose benchmarks or percentages that reduce work. The documentation requirement and professional standards aim to limit opportunistic choices (Documentation para 14; Definitions and Application material).\n\n**Special considerations**\n\n- Public sector audits: the standard explicitly recognises different primary users (legislators, regulators) and alternative benchmarks (total cost, net cost, assets) that may be more relevant (A10).\n- Small entities: when profit is nominal, other benchmarks (e.g., profit before owner remuneration and tax) may be more relevant (A11).\n- Particular classes of transactions/accounts/disclosures: auditors must set lower materiality levels where law, regulation, or user attention make smaller misstatements important (para 10 and related Application material).\n\n**Concrete mechanics auditors will follow (short)**\n\n1. Choose an appropriate benchmark (profit, revenue, assets, etc.) and an initial percentage as a starting point (A10).\n2. Set overall materiality for the financial report as a whole (para 10).\n3. Set performance materiality(s) below that amount to limit aggregation risk (para 11).\n4. Identify any classes of transactions/accounts/disclosures needing a lower materiality and set levels for them (para 10).\n5. Use these amounts to design the nature, timing and extent of audit procedures (para 4).\n6. Revise and document amounts if new information during the audit warrants changes (paras 12–14).\n\n**Sections to look at for the detailed rules**\n- Application: Aus 0.1–0.3; Objective and Definitions: paras 8–9; Requirements: paras 10–14; Application/Explanatory material: A1–A14."}},"importantCases":[],"_links":{"self":"/api/acts/asa-320-materiality-in-planning-and-performing-an-audit-october-2009","history":"/api/acts/asa-320-materiality-in-planning-and-performing-an-audit-october-2009/history","analysis":"/api/acts/asa-320-materiality-in-planning-and-performing-an-audit-october-2009/analysis","conflicts":"/api/acts/asa-320-materiality-in-planning-and-performing-an-audit-october-2009/conflicts","importantCases":"/api/acts/asa-320-materiality-in-planning-and-performing-an-audit-october-2009/important-cases","documents":"/api/acts/asa-320-materiality-in-planning-and-performing-an-audit-october-2009/documents"}}