Conformity with International Standards Conformity with International Standards on Auditing

Conformity with International Standards on Auditing

37 Except as noted below, this Auditing Standard conforms with International Standard on Auditing ISA 320 Audit Materiality, issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. The main differences between this Auditing Standard and ISA 320 are:

• The definition of materiality in ISA 320 is taken from the International Accounting Standards Committee’s Framework for the Preparation and Presentation of Financial Statements, which describes materiality in the following terms:

“Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful”.

Although ISA 320 recognises that both the amount (quantity) and nature (quality) of misstatements need to be considered, the focus of ISA 320 is on quantitative materiality. In contrast, the description of materiality provided in Australian Accounting Standards does not refer to the size of an item per se and the discussion in AASB 1031 recognises that “it may be necessary to treat as material an item or an aggregate of items which would not be judged to be material on the basis of the amount involved, because of their nature….”. Therefore, this Auditing Standard includes further discussion of qualitative factors which may impact on the auditor’s assessment of materiality (paragraph 20).

• This Auditing Standard includes the following mandatory requirements that are not included in ISA 320:

♦ An auditor shall make a preliminary assessment of materiality to establish an appropriate quantitative materiality level to plan risk assessment procedures, further audit procedures at the assertion level, selection strategies and other procedures (paragraph 12).

♦ The auditor shall consider qualitative factors, which impact on the materiality of individual misstatements, to assess:

○ the significance of the misstatement to the particular entity;

○ the pervasiveness of the misstatement; and

○ the effect of misstatement on the financial report as a whole (paragraph 21).

♦ The auditor shall bring to the attention of management, misstatements identified during the audit, other than those that are clearly trivial, for correction prior to evaluating the effect of remaining uncorrected misstatements (paragraph 24).

♦ When the auditor concludes that uncorrected misstatements are immaterial individually and in aggregate to the financial report, the auditor shall endeavour to obtain representations from management to acknowledge: