Wiley Practitioner's Guide to GAAS 2018, 2nd Edition

AU-C 320 Materiality in Planning and Performing an Audit

AU-C Pronouncement

Source

Statement on Accounting Standards (SAS) 122.

NOTE: The auditor may want to consider the guidance provided in the SEC's Staff Accounting Bulletin (SAB) 99, Materiality. This SAB addresses the application of materiality thresholds to the preparation and audit of financial statements filed with the SEC and provides guidance on qualitative factors to consider when evaluating materiality.

Definition of Term

Source: AU-C Section 320.09

1. Performance materiality. The amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances, or disclosures. Performance materiality is to be distinguished from tolerable misstatement.

Objective of AU-C Section 320

AU-C Section 320.08 states that:

…the objective of the auditor is to apply the concept of materiality appropriately in planning and performing the audit.

Overview

The concept of materiality recognizes that some matters are more important for the fair presentation of the financial statements than others. In performing the audit, ...