ESC
Clarivate

 
Source: Journal Citation ReportsTM from ClarivateTM 2022

Entrepreneurship and Sustainability Issues Open access
Journal Impact FactorTM (2022) 1.7
Journal Citation IndicatorTM (2022) 0.42
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

Authors

Masiulevičius, Audrius
Vilnius University, Vilnius, Lithuania https://www.vu.lt
Articles by this author in: CrossRef |  Google Scholar

Lakis, Vaclovas
Vilnius University, Vilnius, Lithuania https://www.vu.lt
Articles by this author in: CrossRef |  Google Scholar

Journal title

Entrepreneurship and Sustainability Issues

Volume

6


Number

1


Issue date

September 2018


Issue DOI


ISSN

ISSN 2345-0282 (online)


Publisher

VšĮ Entrepreneurship and Sustainability Center, Vilnius, Lithuania

Cited

Google Scholar

Article views & downloads

HTML views: 4532  |  PDF downloads: 1747

References


A short overview. http://www.unifr.ch/ses/pdf/cours/Audit_methodology_FS_10.pdf

Search via ReFindit


Acito, A. A.' Burks, J. J.; Johnson, W. B. (2009). Materiality decisions and the correction of accounting errors, Accounting Review. Vol. 84, Issue 3, p. 659 - 688.

Search via ReFindit


Aljaaidi, K. S. Y. (2009). Reviewing the audit expectation gap Literature from 1974 to 2007 // IPBJ. Vol. 1, Issue 1, p. 41 - 75.

Search via ReFindit


Application of Materiality to Financial Statements. IFRS Practice Statement (2015). http://www.ifrs.org/Current-Projects/IASB-Projects/Disclosure-Initiative/Materiality/Exposure-Draft-October-2015/Documents/ED_IFRSPracticeStatement_OCT2015_WEBSITE.pdf

Search via ReFindit


Ataskaita dėl auditorių ir audito įmonių audito kokybės užtikrinimo 2015 m. [Report on quality assurance audit of auditors and audit firms in 2015]. http://lar.lt/www/new/request.php?8925

Search via ReFindit


Bagshaw, K.; Selwood, J. 2014. Core Auditing Standards for Practitioners. Cornwall: John Wiley & Sons, Incorporated.

Search via ReFindit


Barnes, J. (1973). More efficient auditing through an understanding of the materiality concept // Journal of Accountancy. Vol. 135, Issue 5, p. 78 - 80.

Search via ReFindit


Challenges ahead for upbeat entrepreneurs. 2016. Director. Vol. 69 Issue 8, p. 48-49.

Search via ReFindit


Chewning, E. G.; Eugene, G.; Wheeler, S. W.; Chan, K. C. (1998). Evidence on auditor and investor materiality thresholds resulting from equity-for-debt swaps, Auditing: A Journal of Practice & Theory. Vol. 17, No 1, p. 39 - 53.

Search via ReFindit


Cho, S. Y.; Hagerman, R. L.; Nabar, S.; Patterson, E. R. (2003). Measuring Stockholder Materiality, Accounting Horizons. Vol. 17, p. 63 -76.

Search via ReFindit


Coenen, T. (2012). Why didn’t the auditors find the fraud? http://www.sequenceinc.com/fraudfiles/2012/03/why-didnt-the-auditors-find-the-fraud/

Search via ReFindit


Considerations of materiality in financial reporting (2012). https://www.esma.europa.eu/sites/default/files/library/2015/11/2011_373_.pdf

Search via ReFindit


Dutta, S. K.; Graham, L. E. (1998). Considering Multiple Materialities for Account Combinations in Audit Planning and Evaluation: A Cost Efficient Approach, Journal of Accounting, Auditing and Finance Vol. 13, No. 2. 151 - 171

Search via ReFindit


Eilifsen, W. F.; Messier, W. F. Jr. (2015). Materiality Guidance of the Major Public Accounting Firms, Auditing: A Journal of Practice & Theory. Vol. 34, No. 2, p. 3 – 26.

Search via ReFindit


Emby, C.; Pecchiari, N. (2013). An Empirical Investigation of the Influence of Qualitative Risk Factors on Canadian Auditors' Determination of Performance Materiality, Accounting Perspectives. Vol. 12 Issue 4, p. 281 - 299.

Search via ReFindit


Holstrum, G. L.; Messier, W. F. Jr. (1982). A Review and Integration of Empirical Research on Materiality, Auditing: A Journal of Practice & Theory. Vol. 2, No 1, p. 45 - 63.

Search via ReFindit


Houghton, K. A.; Jubb, C.; Kend, M. (2011). Materiality in the context of audit: the real expectation gap, Managerial Auditing Journal. Vol. 26 Issue 6, p. 482 - 500.

Search via ReFindit


ISA 200 Overall Objectives of the independent auditor and the conduct of an audit in accordance with international standards on auditing. http://www.ifac.org/system/files/downloads/a008-2010-iaasb-handbook-isa-200.pdf

Search via ReFindit


ISA 260 Communication with those charged with governance. http://www.ifac.org/system/files/downloads/a014-2010-iaasb-handbook-isa-260.pdf

Search via ReFindit


ISA 265 Communicating deficiencies in internal control to those charged with governance and management. http://www.ifac.org/system/files/downloads/a015-2010-iaasb-handbook-isa-265.pdf

Search via ReFindit


ISA 315 (Revised) Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment. https://www.iaasb.org/system/files/meetings/files/20130415-IAASB-Agenda_Item_5-D_Disclosures%20-%20ISA%20315%20%28Revised%29%20for%20reference%20ONLY.pdf

Search via ReFindit


ISA 320 Materiality in planning and performing audit. http://www.ifac.org/system/files/downloads/a018-2010-iaasb-handbook-isa-320.pdf

Search via ReFindit


Iskandar, T. M.; Iselin, E. R. (1999). A review of materiality research // Accounting Forum. Vol. 23, Issue 3, p. 209 - 239.

Search via ReFindit


Jennings, M.; Kneer, D. C.; Reckers, P. M. J. (1987). A Reexamination of the Concept of Materiality: View of Auditors, Users, and Officers of the Court, Auditing: A Journal of Practice & Theory. Vol. 6, No 2, p. 104 - 115.

Search via ReFindit


Joldos, A. M.; Staniciu, I. C.; Grejdan, G. (2010). Pillars of the Audit Activity: Materiality and Audit Risk //Annals of the University of Petrosani Economics. Vol. 10 Issue 2, p. 225 - 238.

Search via ReFindit


Kristensen, R. H. (2015). Judgment in an auditor’s materiality assessments // Danish Journal of Management & Business. Nr. 2, p. 53 - 65.

Search via ReFindit


Lakis, V.; Masiulevičius, A. (2017). Possibilities of harmonizing materiality expectations of the users of financial statements and materiality value applied by the auditor (not published yet), Vadyba/Journal of Management. Vol. Nr. 2 (31).

Search via ReFindit


Mckee, T. E.; Eilifsen, A. (2000). Current materiality guidance for auditors, CPA Journal. Vol. 70, Issue 7, p. 54 - 58.

Search via ReFindit


Messier, W. F. Jr.; Martinov-Bennie, N.; Eilifsen, A. (2005). A review and integration of empirical research on materiality: two decades later, Auditing: A Journal of Practice & Theory. Vol. 24, Issue 2, p. 153 - 187.

Search via ReFindit


Namolo, O. 2017. The top 10 challenges faced by entrepreneurs today: solved. https://www.deluxe.com/sbrc/financial/top-10-challenges-faced-entrepreneurs-today-solved

Search via ReFindit


Payroll challenges are a fact of small-business life. 2017. Inc. Vol. 39 Issue 9, p. 62-62. https://www.inc.com/surepayroll/payroll-challenges-are-a-fact-of-small-business-life.html

Search via ReFindit


Raziūnienė, D.; Verbickaitė, G. (2017). Reikšmingumo samprata finansinių ataskaitų audite [Significance concept in audit of financial statements], Apskaitos ir finansų mokslas ir studijos: problemos ir perspektyvos. Vol. 11, No 1, p. 41 - 51.

Search via ReFindit


Rooij, D. (2009). Materiality of misstatements from the perspective of the users of the financial statements - Narrowing the expectation gap between users and auditors, Erasmus University, p 136-159.

Search via ReFindit


SAS 107 Audit Risk and Materiality in Conducting an Audit. http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00312.pdf

Search via ReFindit


Survival of private sector establishments by opening year (2017). https://www.bls.gov/bdm/us_age_naics_00_table7.txt

Search via ReFindit


Zuber, G. R.; Elliot, R. K.; Kinney, W. R.; Leisenring, J. J. (1983). Using materiality in audit planning, Journal of Accountancy. Vol. 155 Issue 3. 42 - 54.

Search via ReFindit