Audit Risk

INTERNATIONAL STANDARD ON AUDITING 320 AUDIT MATERIALITY
(This Standard is effective, but contains conforming amendments that become effective at a future date)*

CONTENTS
Paragraph Introduction ................................................................................................... Materiality ..................................................................................................... The Relationship Between Materiality and Audit Risk ................................. Evaluating the Effect of Misstatements ......................................................... 1-3 4-8 9-11 12-16

International Standard on Auditing (ISA) 320, “Audit Materiality” should be read in the context of the “Preface to the International Standards on Quality Control, Auditing, Assurance and Related Services,” which sets out the application and authority of ISAs.
The Audit Risk Standards

the Risks of Material Misstatement,” ISA 330, “The Auditor’s Procedures in Response to Assessed Risks,” and ISA 500 (Revised), “Audit Evidence,” gave rise to conforming amendments to ISA 320. These amendments are effective for audits of financial statements for periods beginning on or after December 15, 2004.

1

ISA 320 (CONFORMED)

AUDIT MATERIALITY (CONFORMED)

Introduction
1. The purpose of this International Standard on Auditing (ISA) is to establish standards and provide guidance on the concept of materiality and its relationship with audit risk. The auditor should consider materiality and its relationship with audit risk when conducting an audit. “Materiality” is defined in the International Accounting Standards Board’s Committee’s “Framework for the Preparation and Presentation of Financial Statements” in the following terms: “Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular