The audit of the enterprise is its goalhas the identification of any inaccuracies admitted intentionally or accidentally in the financial documents of the company. However, inaccuracies are different, and their size can lead to various kinds of consequences. So, let's say, an incorrect rounding of an amount on an account of several hundred rubles will not fundamentally change the financial picture of an enterprise, while an incorrect calculation of the depreciation rate may substantially distort the real situation. That is why in the practice of audits one of the key points is the calculation of the materiality level in the audit.
So, what is materiality, and howis it calculated? The calculation of the level of materiality in an audit is a comparison of the amount of error with the base indicator and the identification of the percentage of error. Thus, using a specially established materiality threshold, it is possible to determine which errors are relatively safe for the company and which can lead to a serious distortion of financial information, which subsequently will influence the decisions of the company's management.
The calculation of materiality in the audit occursas follows: the value of the indicator re-calculated by the auditor (correct) is subtracted from the original (incorrect) indicator, the modulus of this difference is divided by the correct value of the indicator and multiplied by one hundred percent. Thus, the auditor receives a percentage of materiality. After that, he needs to compare the obtained value with the threshold of materiality - a figure above which materiality becomes too high and will lead to serious misstatements in the statements. As a rule, in most cases, the materiality threshold is assumed to be five percent, however, for certain categories this threshold may vary (for example, audit of calculations with extrabudgetary funds implies a lower materiality threshold due to the fact that five percent of all deductions will be too large amount).
Как известно, в конце проверки аудитор provides its findings to the company management. The calculation of materiality in an audit affects the type of output that the auditor will provide to management. So, if the audit did not reveal any errors and all the statements are accurate, the auditor will give a positive conclusion about the organization of accounting in the enterprise. If there are violations and inaccuracies, however, they do not exceed the materiality threshold (it is sometimes called materiality), then the output will be conditionally positive, that is, it will indicate all errors and only after correcting them can the conclusion be considered positive. The negative conclusion is given in the event that significant errors and errors in financial documentation are revealed.
It is also important to remember that the valuemateriality will vary depending on which indicator will be taken as a baseline. For example, if we check the operations on the current account, then we can take the account balance as a basic indicator at the end of the reporting period. In this case, the detected errors will have a sufficiently large percentage. If we take the balance currency, which includes the value of fixed assets, which may exceed the amount of the account balance hundreds and thousands of times, as a basic indicator, then, of course, the error can be considered insignificant. Therefore, when calculating the materiality level in an audit, it is important to understand what is being tested and which indicator should be chosen as a baseline. This will make it possible in the future to avoid claims from the management of the client company of the audit firm and retain the good name of the audit firm.
We hope that this article has helped our readers to get an idea about one of the most important concepts of auditing.
