Summary of SA 320 Materiality in Planning and Performing an Audit

1. Meaning: significance. Any information is material if it influences the decision of the users of F.S.

2. Criteria for materiality: purely professional judgment of the auditor. Sometimes statutory provisions also contain the element of materiality criteria.

3. Several individual unimportant items together may become a material in total.

4. From the planning stage: SAP­13 states that while planning the audit, the auditor should consider what would make the financial information materially misstated.

5. Change in materiality: However, the auditor’s assessment of materiality at the concluding stage / during the course of audit may be different from that of the materiality at the time of planning. The assessment of materiality would change because of a change in circumstances or a change in the auditor’s knowledge as a result of the audit.

6. Auditor should consider whether the effect of aggregate uncorrected mis­statements on the financial information is material.

7. The aggregate of uncorrected mis­statements comprises:

a. Specific mis­statements identified by the auditor including the net effect of uncorrected mis­statements.

b. Mis­statements which cannot be specifically identified i.e. projected errors.

8. If the aggregate of the uncorrected misstatements is material he may consider it’s ­

Impact in the F/S either himself or through management, otherwise, furnish a qualified / adverse opinion.