Main changes from AUS 306 (June 2001) MaMain changes from AUS 306 (June 2001) Materiality and Audit Adjustments

Main changes from AUS 306 (June 2001) Materiality and Audit Adjustments

The main differences between this Auditing Standard and the Auditing Standard issued by the Auditing & Assurance Standards Board of the Australian Accounting Research Foundation, AUS 306 (June 2001) Materiality and Audit Adjustments, are that in this Auditing Standard:

1. The word ‘shall’, in the bold-type paragraphs, is the terminology used to describe an auditor’s mandatory requirements, whereas an auditor’s degree of responsibility is described in AUS 306 by the word ‘should’.
2. The explanatory guidance paragraphs provide guidance and illustrative examples to assist the auditor in fulfilling the mandatory requirements, whereas in AUS 306 some obligations are implied within certain explanatory paragraphs. Accordingly, such paragraphs have been re-drafted to clarify that they form part of the explanatory guidance.
3. The following implied obligations, in AUS 306, have been elevated and re-stated as specific mandatory requirements:

(a) 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 audit procedures (paragraph 12);

(b) the auditor shall consider qualitative factors, which impact on the materiality of individual misstatements, to assess:

(i) the significance of the misstatement to the particular entity;

(ii) the pervasiveness of the misstatement; and

(iii) the effect of misstatement on the financial report as a whole (paragraph 21);

(c) 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 the remaining uncorrected misstatements (paragraph 24); and

(d) 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:

(i) uncorrected misstatements have been brought to their attention by the auditor; and

(ii) they have considered the effect of any uncorrected misstatements, aggregated during and pertaining to the latest period, on the financial report and consider the misstatements are immaterial individually and in aggregate to the financial report taken as a whole (paragraph 35).

4. Additional explanatory guidance is provided in relation to misstatements, identified during the audit, that an auditor shall bring to the attention of management (paragraphs 25 and 26).