ISA 320: Audit Materiality

[mubujk]

Salam to all,

I m a student of Mod D and have some problem with <b>ISA 320</b>, Audit Materiality.

I cant understand the relationship between Audit Risk and Materiality Level. As per my view, if materiality level increases, detection risk should go down and less procedures are required and ultimately result in high audit risk. but in ISA the relation b/s Audit risk and materiality is inverse, i.e. <i>increase in Audit Risk results in decrease in Materiality level</i>. <b>(Paragraph # 10 of ISA 320)</b>.

<u>Please explain me this para.</u>

Regards, waiting for reply.

[mubujk]

Comon guyz...

I really need explanation as I have presentation on Sunday.

Hope to find an Audit interested person as many here are ACCOUNTANCY LOVERS.

Regards
Mubashir Hussain

[faisal_desperado]

Dear,
Where is the differentiation is between your views and the para you quoted?

Lets assume, A rule of thumb that anything less than 5% is probably not material, and anything greater than 10% is material. In this case Between 5-10% requires judgment. If material level is set at 10% then Audit risk i.e. the risk of a material misstatement in the audited financial statements, will be lower, since material level has been set at the upper end of 5%-10%, however, if material level is set at the lower end then Audit risk would be high since 5% may be reached easily hence chances are high, so audit risk would be higher. On the other hand, at 10%, chances to reach at 10% will be remote, hence audit risk will be lower.

I hope the answer is sufficed enough for your understanding.

Best Regards,

[mubujk]

@ Faisal

Thanks for reply. Things are a bit clear now.

Regards
Mubashir Hussain