Determining materiality in a pandemic
Setting audit materiality during the coronavirus crisis can be challenging, with considerations including alternative benchmarks, evaluation of misstatements and increased risk of fraud. Louise Sharp, Technical Manager at the Audit and Assurance Faculty, offers pointers and introduces the new faculty guidance.
The pandemic has been having a profound effect on many businesses and sectors. Some businesses have experienced temporary downturns in trade, while others are facing more fundamental and longer-term changes. It will be no surprise to auditors that, as a result, COVID-19 is also likely to have an impact on their determination of materiality on audits and the benchmarks used.
It is important to say upfront that nothing has changed in terms of the requirements for determining materiality. They remain as set out in the auditing standard on materiality in planning and performing an audit (ISA 320) You can find out more about them in the faculty’s guide Materiality in the audit of financial statements, which also includes illustrations of how materiality may be determined.
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