The main goal in the work of the auditor is to express his own opinion about the reliability of the financial statements and the correctness of accounting. But to make an informed opinion, it is necessary to have accurate and voluminous information and be able to draw the right conclusions on its basis. What role does materiality play in auditing? In fact, it is extremely important, because the correctness of the conclusion, and, therefore, the reputation of the audit organization , depends on what the main criteria for assessing the financial activity of an economic entity will be .
So, the materiality in the audit is the value of permissible distortions and errors, which is considered the maximum. This value is established in order to ensure reliable judgments and assess the reliability of financial statements. The auditor may recognize the found distortions as insignificant if they do not significantly affect the final result of the enterprise. At the same time, materiality in the audit should be considered from two points of view - qualitative and quantitative. In the first case, the specialist is based on his own opinion, comparing the degree of deviation of actually performed operations from the order specified in regulatory documents. This is a rather subjective concept, not supported by calculations and exact numbers. In the second case, the auditor analyzes the total value of errors and deviations, and also examines each separately, then compares it with the established level of materiality.
The specialist conducting the audit has the right to establish a general rate of materiality or develop separate indicators for each reporting item. He must make this decision at the planning stage of the audit, fix it in writing with a mandatory mark in the overall audit plan. However, materiality in an audit is not a concept that is absolutely accurate and unchanging. If, at the stage of the main work, circumstances are found out in accordance with which there will be grounds for changing this indicator, the auditor has the right to make such changes to the working documents in agreement with the head of the audit.
There are two main approaches to determining the level of materiality:
The first involves the identification of the materiality of each balance sheet item, then the summation of these indicators, which will be the overall materiality. The second approach is the opposite and is based on the establishment of a common indicator, and then it is distributed among individual balance sheet items. The specialist independently decides on the choice of a specific method of work. In many ways, audit risk is assessed using a materiality indicator.
At the time of the audit, the auditor evaluates both the qualitative and quantitative aspects. That is, if the total errors and distortions do not exceed the level of materiality, as well as qualitative deviations from the order specified in the regulatory documents, are deemed insignificant, then the specialist can conclude that the reporting is reliable in all respects. If the size of the general errors and distortions is much larger than the established value of the materiality level and the qualitative deviations are considered significant, then the auditor is obliged to conclude that all the documentation is unreliable.
In practice, there are cases that are not subject to unambiguous judgment. For example, when the sum of errors is greater or less than the level of materiality, but in general is close to it, and qualitative distortions cannot be unambiguously defined as significant, the specialist has to take responsibility and make a conclusion based on his own judgments. As a rule, in such situations, he turns to the head of the enterprise with a proposal to correct the detected errors and deviations from regulatory documents. If the client refuses to do this, the auditor has the right, based on the available data, to prepare an audit opinion that is different from absolutely positive. Thus, materiality in the audit plays an important role, and this indicator must be taken into account during any audit.