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Materiality in committees have an essential role to play in ensuring the integrity and transparency of corporate reporting. The PwC Audit Committee Guide is designed to help members of the audit committee work through their maze of responsibilities in a practical manner.

150 Contents Contacts 151 4 31 31 2

Audit committees have an essential role to play an essential role in ensuring to have committees integrity the Audit and transparency of corporatereporting. help members of the to Guide is designed Committee The PwC Audit maze of responsibilities through in a their work audit committee practical manner. “Information could influence is material if its omission or misstatement the economic decisions of users on the taken the basis of statements. financial Materiality on the depends size of the or error in the item judged particular Thus, materiality provides of its omission or misstatement. circumstances a threshold or cut-off point rather than being a primary qualitative be useful.” characteristic if it is to which information have must When preparing determine an entity must statements, financial correct. materially are materialitystatements its financial ensure and What is materiality? defines materiality Board The International Standards as follows: Materiality in audits Materiality in audits Contents Contacts 152 4

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1 2 al expenses, total equity al expenses, total .

Profit before continuing operations is oftentax from for profit- before Profit used oriented entities. volatile, continuing operations is tax from before When profit other benchmarks appropriate, be more such may as gross profit or total

and/or net value. asset and/or net • • the as a numerical Using a percentage basis for threshold provide may a preliminary that of less than a deviation assumption that percentage the quantifying size of a misstatement material. be However, to is unlikely terms the is only in percentage start, be used as a substitute and cannot considerations. of all relevant a full analysis for Materiality = quantity and quality Materiality and quality = quantity are of misstatements Both the (quality) and nature amount (quantity) what is material. deciding to relevant Quantitative a chosen to a percentage is often applying by The materiality determined level for such figure percentage, this as more benchmark. is no definitive There per cent is material, because of the number of variablesthan which 10 could of benchmarks Examples categories are of reported income such as apply. tot profit, gross , total tax, before profit to to

accordingly.

The objective of a audit is to enable the auditor to an to enable express audit is statement of a financial the auditor The objective whether the in all materialrespects, opinion as to prepared, are statements financial with This is a separate in accordance reporting an applicable financial framework. that from decision the and a separate responsibility made by entity itself when preparing the statements. financial but amount, a quantified just effectthe In auditing, materiality means not that in various contexts. amount will have During the the audit planning process decides what the of materiality auditor level the of theto be audited. will be, taking into entirety statements financial both the to of theMateriality relates content and statements financial the level about the judgements be done. The decision is based on size, to and type of testing and particularnature (or omissions) that of misstatements circumstances could influence usersof reports.financial the In addition, by the decision is influenced and public expectations. and regulatory legislative requirements If, during caused it the information have audit, the that acquires auditor would Materiality in audits does materialityHow apply in an audit? the it will revise a different materialitydetermine materiality level, level Materiality in audits Contents Contacts 153 4

1 2 3 The final call rules no materiality. determine are There to that can be applied consistently not be material term. circumstance may in one What may Materiality is a relative be material in another. of materiality that recognises The concept either some matters, or individually in fairly, important are be presented in aggregate, if the to nts are stateme principles. accepted withall material in accordance respects, generally each separately, only misstatement therefore consider not must The auditor but also the effect aggregate of all misstatements. In the end, the the for assessment of what is material is a matter professional and experiencejudgement of the auditor.

description of an accounting policy. or improper The inadequate disclose a breach when the of regulatory to imposition requirements Failure operating capability. of regulatory impair restrictions will significantly

Examples of qualitative misstatements misstatements of qualitative Examples • • Qualitative Qualitative the to of the nature Materiality in the also relates item the of context particular its misstatement. of circumstances the magnitude alone, without to the of nature and Therefore regard item the circumstances in which generally the be made, will not decision has to for a materiality judgement. be sufficient basis consider the also needs to of possibility of misstatements The auditor a material effect. could have small amounts that, cumulatively, relatively an error example, in a month-end could be an indication procedure For material if that misstatement errorof a potential each month. is repeated if therefor is a deficiency in an internalexample, process, control Similarly, consider whetherthe that to needs by itself or in auditor deficiency might, combination with otherresult in a material not deficiencies, misstatement or detected. being prevented Materiality in audits Materiality in audits