1. Component Materiality for Group Audits.
- Author
-
Glover, Steven M., Prawitt, Douglas F., Liljegren, Jonathan T., and Messier Jr., William F.
- Subjects
MATERIALITY (Accounting) ,AUDITING procedures ,AUDITING standards ,INTERNATIONAL auditing standards ,FINANCIAL statements ,PROBABILITY theory - Abstract
* Regulator inspections and firms' quality reviews have revealed a variety of methods used by group engagement partners in determining component materiality and have identified potentially troubling matters with some of the current approaches. * International Auditing Standard (IAS) no. 600, Special Considerations-Audits of Group Financial Statements (Including the Work of Component Auditors), defines a continuum of materiality amounts that conceivably could be allocated to components. A reasonable, practical approach is allocating overall materiality to components while avoiding the extremes of the continuum. * Benchmark multiples are suggested as reasonable upper bounds for group engagement partners to consider when evaluating the appropriateness of aggregate component materiality and component materiality allocations. These multiples are based on a simple probabilistic model that takes into account the number of components to which overall materiality is to be allocated and audit risk at the component and group levels. [ABSTRACT FROM PUBLISHER]
- Published
- 2008