ISA 320 Audit Materiality
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ISA 320 Audit Materiality is one of the International Standards on Auditing. It serves to expect the auditor is to establish an acceptable materiality level in design the audit plan.
Materiality: If the financial statements readers makes a wrong economic decision due to misstatement of the financial statements, it is called material.
There are no hard rules over materiality and items can be material by nature as well as by value. Examples of items that are material by nature are cash at bank and directors reumneration. These are material by nature as they are perceived as integral to a users view of a company.
For an item to be material by value many different measures can be used, one of the most common is to use 0.5 - 1% of turnover. Adjustments that would not move profit by more than this will not be be put through the accounts as they would not change a user's understanding of the accounts.
