MATERIALITY IN AUDITING: APPROACH BASED ON PRIORITIES AND CONSTRAINTS
The article presents the results of research on the development of theoretical and methodological provisions and practical recommendations on the definition and application of materiality level of all stages of audit allowing to ensure the efficiency of audit planning and minimization of risks of revision of audit strategy at the final stage. The author proposes a method for determining the levels of materiality for financial statements in general and their individual significant items, as well as for performing the audit procedures and determining the level of obviously minor distortions. The author’s approach, in contrast to those published earlier, is based on the priority information needs of users of financial information and the limitations of economic life of the audited economic entity. The scientific novelty of this study is to develop a rational mechanism for determining and justifying the levels of materiality in auditing. The author has substantiated the establishment and application of materiality for individual significant balances (groups of the same types of operations) that form the descriptors of management decisions of interested users of reports. The author has also developed the algorithm for determining the level of materiality for accounting (financial) statements in general based on the priority needs of users of financial information, as well as the method for calculating the materiality levels for individual balances and groups of similar operations for performing audit procedures and the level of obviously minor distortions. The research results indicate the place of each of materiality indicators in audit strategy and the formation of opinion in the audit report. The methodology is also focused on the complete and transparent documentation of the processes of establishing and applying of materiality at all stages of audit. The author’s multilevel mechanism for determining the materiality is the key criterion of audit quality, since it ensures the compliance of the opinion in the auditor’s report with the collected audit evidence.