decision of users of the report Materiality is usually established on the following bases Profit before tax (5 10%); Liquid assets (5 10%); Revenue (1 2%); Total assets (3 6%), In making an initial as.
decision of users of the report Materiality is usually established on the following bases: Profit before tax (5-10%); Liquid assets (5-10%); Revenue (1 - 2%); Total assets (3-6%), … In making an initial assessment of materiality, the Auditor should consider factors relevant to the nature of the misstatement Step 2: Allocate an initial estimate of materiality to items: After the auditor has made an initial estimate of materiality for the entire financial statements, the auditor should allocate this estimate to each item in the financial statements This will help the auditor to estimate the amount of audit evidence to be collected for each item with the lowest cost, ensuring the synthesis of errors in the financial statements The ibasis ifor ithe iallocation iof imateriality iis ithe inature iof ithe iitems, iinherent irisk, icontrol irisk, ithe iauditor's iexperience, iand iaudit ifees iIn ifact, ithis iwork iis isubjective, ihighly idependent ion iprofessional ijudgment, iand irequires ihighly iqualified ipeople ito iperform Risk iassessment: On ithe ibasis iof imateriality iamortized ito iAP ito iSuppliers, ithe iauditor iassesses ithe ipossibility iof imaterial imisstatement ifor ithis iitem ifor ithe ipurpose iof idesigning iaudit iprocedures iand ideveloping iaudit iplans iaudit iprogram iThe iauditor idetermines ithe idesired ilevel iof iaudit irisk Audit irisk: ifor iAP ito iSuppliers iis ithe ipossibility ithat ithe iauditor iwill iexpress ian iinappropriate i opinion iwhen ithe iaudited ifinancial istatements iare istill ifree iof imaterial imisstatements iAudit irisk i(AR) i consists iof ithree icomponents: iinherent irisk, icontrol irisk, iand idetection irisk Inherent irisk i i(IR): iis ithe ipotential irisk ithat iis iinherent iin ithe ipossibility ithat iin ieach itransaction, i the ipayables iitem to suppliers in the financial statements will contain material misstatement, either separately or in aggregate, with or without a control system in place internal control