Document ID: chunk:federal_register_of_legislation:F2023C01123:reg:9:p3
Version: federal_register_of_legislation:F2023C01123
Segment Type: reg
Provision Reference: reg 9 (pt 3/9)
Character Range: 12204–15411

In planning the audit, the auditor makes judgements about misstatements that will be considered material.  These judgements provide a basis for:

(a)                Determining the nature, timing and extent of risk assessment procedures;

(b)                Identifying and assessing the risks of material misstatement; [3] and

(c)                Determining the nature, timing and extent of further audit procedures.

    The materiality determined when planning the audit does not necessarily establish an amount below which uncorrected misstatements, individually or in the aggregate, will always be evaluated as immaterial.  The circumstances related to some misstatements may cause the auditor to evaluate them as material even if they are below materiality.  It is not practicable to design audit procedures to detect all misstatements that could be material solely because of their nature.  However, consideration of the nature of potential misstatements in disclosures is relevant to the design of audit procedures to address risks of material misstatement.  In addition, when evaluating the effect on the financial report of all uncorrected misstatements, the auditor considers not only the size but also the nature of uncorrected misstatements, and the particular circumstances of their occurrence.[4]   (Ref: Para. A2 )

Effective Date

7.                   [Deleted by the AUASB.  Refer Aus 0.3]

Objective

8.                   The objective of the auditor is to apply the concept of materiality appropriately in planning and performing the audit

Definition

9.                   For the purposes of this Auditing Standard, the following terms have the meanings attributed below:

(a)                Performance materiality means the amount or amounts set by the auditor at less than materiality for the financial report as a whole to reduce aggregation risk to an appropriately low level.  If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances or disclosures.

(b)                Aggregation risk means the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial report as a whole.

Requirements

Determining Materiality and Performance Materiality When Planning the Audit

10.               When establishing the overall audit strategy, the auditor shall determine materiality for the financial report as a whole.  If, in the specific circumstances of the entity, there is one or more particular classes of transactions, account balances or disclosures for which misstatements of lesser amounts than materiality for the financial report as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report, the auditor shall also determine the materiality level or levels to be applied to those particular classes of transactions, account balances or disclosures. (Ref: Para. A3-A12)

11.               The auditor shall determine performance materiality for purposes of assessing the risks of material misstatement and determining