John Selwood's audit clinic
John looks at some interesting questions from delegates on the spring Audit & Assurance Faculty Roadshows.
My firm uses a well-known off-the-shelf electronic audit system. As a default it calculates materiality as the simple average of percentage driven benchmarks based on turnover, profits and gross assets. Audit teams may override this provided there is justification to do so. I understand that this approach has been criticised. Should we change our methodology?
Audit methodologies can be tricky in this area. They are a very useful way for a firm to help their audit teams apply the International Standards on Auditing (ISAs) in a uniform way across all of the firm’s audit work. However, there is often a difficult balance between uniformity and encouraging the exercise of professional judgement on an audit-by-audit basis.
Personally, I think your approach might struggle to determine materiality on a useful basis.