Received:
2018-03-18 | Accepted:
2018-05-03 | Published:
2018-09-30
Title
Differentiation of performance materiality in audit based on business needs
Abstract
Companies are exposed to various risks. Failure to identify and eliminate them may aggravate the development of companies, some of which may be forced to cease operation. Audit can help in revealing the majority of risks. The auditor has an unlimited access to the information, operational strategy, and in some cases even to commercial secrets, of the auditee. Auditor collects a large amount of different information about the company, but it is used only as much as necessary for formulating a conclusion about financial statements. Upon a closer cooperation of the auditor with the persons in charge of the governance of the audited entity, the client needs can be identified and, once the audit plan is slightly revised, the areas that are within the interest of the client can be analysed in more detail. This article aims to investigate the determination of performance materiality in audit to separate classes of transactions based on the principal areas of importance identified by the business undergoing audit. Based on the data collected during the study, a modified model for determining performance materiality in audit was created which can help to identify better the current and potential risks of the distinguished areas. The application of this model enables carrying out an audit in the areas which are of the highest importance to the users of the audit results more effectively and providing them with more detailed information in the management letter. This would help to identify the substantial risks of the auditee in more detail and on time.
Keywords
materiality, audit, risks, tolerable error, management letter
JEL classifications
M42
URI
http://jssidoi.org/jesi/article/212
DOI
HAL
Pages
115-124
This is an open access issue and all published articles are licensed under a
Creative Commons Attribution 4.0 International License
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