ISA 320 - Materiality in Planning and Performing an Audit
Paras 1 to 14
Application and Other Explanatory Material
Materiality in the Context of an Audit
A2. Identifying and assessing the risks of material misstatement involves the use of professional judgment to identify those classes of transactions, account balances and disclosures, including qualitative disclosures, the misstatement
of which could be material (i.e., in general, misstatements are considered to be mate1ial if they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements as a whole). When considering whether misstatements in qualitative disclosures could be mate1ial, the auditor may identify relevant factors such as:
- The circumstances of the entity for the period (for example, the entity may have unde1taken a significant business combination during the period).
- The applicable financial repo1ting framework, including changes therein (for example, a new financial repo1ting standard may require new qualitative disclosures that are significant to the entity).
- Qualitative disclosures that are important to users of the financial statements because of the nature of an entity (for example, liquidity risk disclosures may be important to users of the financial statements for a financial institution).