Handling materiality can be a challenge when performing an assurance engagement on non-financial information. John Ward offers some valuable advice.
In a financial statement audit, materiality is expressed in monetary terms and is directed at assessing what level of financial misstatement may be acceptable or unacceptable to the users. In an assurance engagement under ISAE 3000 (Revised) Assurance Engagements other than Audit and Reviews of Historical Financial Information (Ifac.org), the starting point for our deliberations is less obvious.
We need to determine materiality for the engagement in the context of the:
- significant claims being made within the subject matter;
- subject matter information (management’s evaluation or related claims);
- engagement circumstances (why it is being conducted); and
- the nature, interests and expectations of the intended users and the purpose to which they will put the report.
In this context, information in a management report would be material if its omission or misstatement could influence the decisions of intended users. We need to understand all of the engagement circumstances to get this right.
It is important that each significant group of intended users is identified and considered when assessing materiality: different qualitative and quantitative factors might be relevant to different users and materiality will need to be assessed accordingly. To set appropriate materiality levels, we may also need to discuss with those preparing the report (the responsible party) and end users what they perceive as material to the subject matter information that we are reporting on. In practice, engagement with the end users is not always either practical or easy.
This is an extract from an article in the July/August 2015 edition of Audit & Beyond, the magazine of the Audit and Assurance Faculty.
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