A methodological proposal for establishing materiality levels in response to the risks of material errors in the financial statements

Eduardo Sosa Mora ()
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Eduardo Sosa Mora: University of Costa Rica

TEC Empresarial, 2019, vol. 13, issue 1, 35-52

Abstract: In order to issue an opinion on the compliance of the financial statements of an entity with International Financial Reporting Standards (IFRS), the auditor must obtain reasonable assurance that such statements are free of material inaccuracies. However, the risk of reaching that conclusion when the financial statements are really distorted by material misstatement is always present. Therefore, the auditor must manage audit risk to carry it a reasonably low level, by reducing the risk of detection. A mechanism that helps to achieve this goal is to establish levels of materiality for the financial statements for some sections and elements of these statements. This article summarizes the main conceptual foundations of audit risk and presents a methodological proposal to establish levels of materiality in response to the risks of material misstatements in the financial statements with the support of an illustrative case.

Keywords: Audit; financial statements; materiality; audit risk; inherent risk; control risk; risk of material inaccuracy; detection risk; tolerable error (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:ris:tecemp:1903

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