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Exploring how materiality assists with the clarity and efficiency of audit

Materiality is more than a number. David Gallagher explores how this professional judgement can help to steer a more efficient and effective audit.

Materiality matters. Auditing standards require it and it assists with the clarity and efficiency of audit. However, in my recent lecture and webinar on materiality, as well as acknowledging the importance of materiality, I suggested that this may sometimes be overstated in relation to efficiency, and I noted the differences in understanding of materiality between auditors. In this article I will revisit these themes and share auditors’ responses to some questions the faculty asked during my recent presentations.

So, let’s begin by exploring the three main reasons why materiality matters. First, setting overall materiality and performance materiality (to name but two) are requirements of the International Standards on Auditing (ISAs). Moreover, if anyone tried to conduct an audit without materiality in mind they would very soon grind to a halt, as it is an important piece of the auditors’ mindset.

Second, when materiality and related ideas (such as performance materiality and specific lower levels of materiality) are understood properly, it assists with the clarity of the audit.

Third, and uppermost in the minds of the commercial audit partner, is of course efficiency. Set the materiality level too low and the result can be unnecessary work; set it too high and late on in an audit one may sometimes end up questioning the decisions made at the planning stage. Above all, materiality is a matter of professional judgement.

However, the point I made during my presentations, which was reiterated by a number of delegates, is that the main scope for audit efficiency lies in other areas. For example, planning the type of procedures to be carried out on different areas.

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