MODERN AUDITING 7th Edition：现代审计的第七版.ppt

MODERN AUDITING 7th Edition William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University Walter G. Kell University of Michigan CHAPTER 8MATERIALITY, RISK AND PRELIMINARY AUDIT STRATEGIES Materiality Audit Risk Preliminary Audit Strategies The Concept of Materiality The FASB defines materiality as The magnitude of an omission or misstatement of accounting information Influence a reasonable financial statement user. Preliminary Judgments About Materiality Planning materiality: Used for planning what is looked at how May differ from the materiality levels used at the conclusion of the audit in evaluating the audit findings because: surrounding circumstances may change and Add’l information about the client obtained during the course of the audit. Preliminary Judgments About Materiality Planning materiality -- assess materiality at the following 2 levels: 1. The financial statement level because the auditor’s opinion on fairness extends to the financial statements taken as a whole. 2. The account balance level because the auditor verifies account balances in reaching an overall conclusion on the fairness of the financial statements. Materiality at the Financial Statement Level Quantitative Guidelines No official guidelines Illustrations of some guidelines used in practice: ? 5% to 10% of net income before taxes (10% for smaller incomes, 5% for larger ones) ? 1/2% to 1% of total assets ? 1% of equity ? 1/2% to 1% of gross revenue ? A variable percentage based on the greater of total assets or revenue Materiality Levels Based on a Variable Percentage of Total Assets or RevenueFigure 8-1 Materiality at the Financial Statement Level Qualitative Considerations Qualitative considerations relate to the causes of misstatements. A misstatement that is quantitatively immaterial may be qualitatively material. Materiality at the Account Balan