Rules (standards) of auditing activities. Legislative framework of the Russian Federation Auditing standard materiality and audit risk

When conducting an audit financial statements ISA 320 states that the auditor's primary objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement (whether due to fraud or error).

This will enable the auditor to express an opinion on whether the financial statements have been prepared, in all material respects, in accordance with the criteria of the applicable financial reporting framework, and to express an opinion on the financial statements and to present it in accordance with the requirements. International standards audit and in accordance with the conclusions reached by the auditor.

The auditor obtains reasonable assurance by obtaining sufficient relevant audit evidence to reduce audit risk to an acceptably low level.

Audit risk is the risk that the auditor will express an inappropriate opinion when the financial statements contain material misstatements. Audit risk is a derivative of the risks of material misstatement and detection risk and is discussed below.

Materiality and audit risk are reviewed throughout the audit, particularly when:

• the risks of material misstatement are identified and assessed;
• the nature, timing and scope of subsequent audit procedures are determined;
• The impact of uncorrected misstatements, if any, on the financial statements is assessed and an opinion is expressed in the auditor's report.

There is an inverse relationship between materiality and audit risk. those. the higher the level of materiality, the lower the level of audit risk, and vice versa. The inverse relationship between materiality and audit risk is taken into account by the auditor when determining the nature, timing and scope of audit procedures. For example, if, after planning specific audit procedures, the auditor determines that the acceptable level of materiality is lower, then audit risk increases. The auditor compensates for this either by reducing the previously assessed level of control risk where possible and maintaining the reduced level by performing enhanced or additional tests of controls, or by reducing the risk of undetected misstatements by changing the nature, timing and extent of planned substantive procedures.

The assessment of materiality and audit risk at the initial planning stage may differ from the assessment after summing up the audit procedures. This may be caused by a change in circumstances or a change in the auditor's awareness of the audit results. For example, if the audit is planned before the end of the reporting period, the auditor can only forecast the results economic activity And financial position audited entity. If actual results of operations and financial position differ materially from those projected, the assessment of materiality and audit risk may change. In addition, the auditor, when planning the work, may intentionally set an acceptable level of materiality lower than that intended to be used to evaluate the results of the audit. This may be done to reduce the likelihood of misstatements not being detected and also to provide the auditor with some degree of security in assessing the consequences of misstatements discovered during the audit.

When assessing the reliability of financial (accounting) statements, the auditor should determine whether the totality of uncorrected misstatements identified during the audit is material. The totality of uncorrected misstatements includes:

• specific misstatements identified by the auditor, including the results of uncorrected misstatements identified during the previous audit;
• the auditor's best estimate of other misstatements that cannot be specifically identified (ie, foreseeable errors).

If the auditor concludes that a misstatement may be material, the auditor will need to reduce audit risk by performing additional audit procedures or by requiring management to amend the financial statements. Management has the right to amend the financial statements taking into account identified misstatements.

If management of the entity being audited refuses to amend the financial statements and the results of extended (additional) audit procedures do not allow the auditor to conclude that the aggregate of uncorrected misstatements is not material, the auditor should consider appropriate modifications of the auditor's report.

If the aggregate of undetected misstatements identified by the auditor approaches the materiality level, the auditor needs to determine whether it is probable that the undetected misstatements, considered together with the aggregate of detected but uncorrected misstatements, may exceed the materiality level determined by the auditor.

The auditor may consider two aspects of materiality in an audit: qualitative and quantitative. From a qualitative point of view, the auditor must use his professional judgment in order to identify deviations in the financial and financial performance of the economic entity during the audit. business transactions from the requirements of legislative and regulatory acts in force in the Russian Federation. From a quantitative point of view, the auditor must evaluate whether, individually and in total, the detected deviations (taking into account the predicted value of undetected deviations) exceed the quantitative criterion - the level of materiality.

When finding the absolute value of the level of materiality, the auditor must take as a basis the most important indicators characterizing the reliability of the reporting of the audited entity.

In practice, audit organizations establish a system of basic indicators and a procedure for determining the level of materiality, which are documented as an internal company standard and applied on an ongoing basis.

If new circumstances arise that become known to the auditor during the audit, he has the right to change (adjust) the value of the materiality level. At the same time, the fact of a change in the level of materiality, the new value of the level of materiality, the corresponding calculations and the auditor’s detailed argumentation must be in mandatory recorded in working documents audit.

The materiality level value obtained at the end of the audit planning stage, as well as any adjustments to the materiality level value during the audit, must be approved by the head of this audit, which is reflected in working documentation checks.

The auditor must invite the management of the audited organization to make corrective entries in the prescribed manner to eliminate the violations he has noticed. If the alleged distortions in the financial statements noted during the audit are of a significant nature, the disagreement of the management of the audited organization with the introduction of corrections may serve as the basis for the auditor to prepare an audit report based on the results of the audit that is different from an unconditionally positive one.

The auditor can audit the financial statements of an enterprise using audit sampling. According to the standard, audit sampling can be carried out using several methods (random sampling, systematic sampling, combined sampling). Using the last two methods, the auditor can omit documents and records with small amounts.

In addition, the user of financial statements must understand that many of its indicators are conditional. For example, if the deadline is unknown beneficial use intangible assets, then PBU 14/2000 “Accounting for intangible assets” recommends using a period of 20 years to calculate depreciation. That is, the article “ Intangible assets» will be reflected in the balance sheet as a notional amount.

Thus, we can conclude that financial statements may contain errors and does not reflect the activities of the enterprise with 100% accuracy.

The auditor must calculate the amount of the maximum permissible error in the reporting, at which it will be reliable. This value is called the materiality level and is regulated by the standard audit activities"Materiality in Auditing".

The level of materiality is understood as the maximum value of an error in the financial statements, starting from which a qualified user of the statements with a high degree of probability will no longer be able to draw correct conclusions on its basis and make correct decisions. economic decisions.

The level of materiality is calculated based on the basic indicators and the percentage of error for them.

Basic indicators are the most important indicators of an enterprise's activity, reflected in reporting forms, by which the user evaluates the possibility of interaction with the enterprise.

For example, at open joint stock company The main users of reporting are shareholders. This group of users will be interested in such reporting indicator as the profit remaining at the disposal of the enterprise. That is, the auditor understands that this particular reporting indicator must be reliable and accepts it as the base indicator for calculating the level of materiality. Banks will be interested in the amount of assets in the reporting of any enterprise. And therefore, the auditor, as a rule, includes the balance sheet total in the system of basic indicators.

The system of basic indicators is developed by each audit organization independently and is constantly applied.

The basis for changing the system of basic indicators and the procedure for determining the level of materiality by the audit organization can be:

a) changes in legislation in the area accounting and taxation affecting the procedure for determining balance sheet items or basic financial reporting indicators;

b) changes in legislation in the field of auditing, establishing requirements for methods for determining the level of materiality;

c) change in the specialization of the audit organization;

d) a significant change in the composition of economic entities subject to audit, from the point of view of their belonging to other sectors of production or another type of activity;

d) change of management of the audit organization.

The document describing the system of basic indicators and the procedure for determining the level of materiality must be open. The audit organization may acquaint interested parties, upon their request, with the procedure adopted by the audit organization for determining the level of materiality.

The auditing standard “Materiality in an Audit” offers a standard system of basic indicators that can be used by an audit organization. It includes: balance sheet profit of the enterprise, gross sales volume excluding VAT, balance sheet currency, equity and total enterprise costs.

Auditing organizations determine the level of materiality by taking a certain percentage of error from basic indicators: numerical values ​​of accounting accounts, balance sheet items or financial reporting indicators. In this case, they can be used as basic indicators current year, as well as average indicators of the current and previous years, as well as any settlement procedures, which can be formalized. Both a single indicator of the level of materiality for a given specific audit and a set of different values ​​of the level of materiality are allowed, each of which should be intended to evaluate a specific group of accounting accounts, balance sheet items, and reporting indicators.

The audit organization has the right to independently determine the percentage of error based on basic indicators, which must be documented. The standard offers typical error fraction sizes.

The significance level for a given audit is determined upon completion of the audit planning stage. The resulting significance level is recorded in the general audit plan.

The auditor, in the event of circumstances that become known to him during the audit, has the right to change (adjust) the value of the materiality level. In this case, the fact of a change in the level of materiality, a new value of the level of materiality, corresponding calculations and detailed arguments of the auditor are reflected in the working documents of the audit.

The materiality level value obtained at the end of the audit planning stage, as well as any adjustments to the materiality level value during the audit, are approved by the head of this audit, which should be reflected in the working documentation of the audit.

The auditor is required to take into account the level of materiality:

a) at the planning stage when determining the content, time and scope of audit procedures to be applied;

b) during the performance of specific audit procedures;

c) at the stage of completion of the audit when assessing the effect of detected distortions and violations on the reliability of the financial statements.

The auditor should keep in mind that individual misstatements noted by him may not be material in themselves, but misstatements taken in the aggregate, as well as noted misstatements together with alleged ones (as a result of the spread of errors noted as a result of random testing to the entire data set) may be of a significant nature. For example, the auditor set the materiality level to 20,000 rubles. During the inspection, he discovered an error in the cost of production of 5,000 rubles. The auditor considers this error to be insignificant and does not take it into account when forming an opinion on the reliability of the reporting item “Cost products sold" But if during the audit five errors are revealed, each costing 5,000 rubles, then together they significantly distort the reporting.

The materiality level is calculated as follows. According to the results financial year at the enterprise subject to inspection, are determined financial indicators, which are entered into a special table to calculate the level of materiality (names of indicators and values). Percentages are taken from these indicators. The result of the calculations is entered into the table.

It is possible that some indicators cannot be included in the table. For example, an enterprise may have no profit at the end of the year or may have a small profit, which, in the opinion of the auditor, taking into account the analysis of indicators for previous years is not typical for of this enterprise. An enterprise may not have sales if it is a non-profit, non-profit enterprise or an organization that is not financed primarily from proceeds from the sale of goods, works, or services. In these cases, dashes may be placed in the corresponding cells of the table.

The auditor must analyze the numerical values ​​obtained as a result of the calculations. In the event that any values ​​deviate significantly more and/or less from the rest, he can discard such values. Based on the remaining indicators, it is calculated average value, which can be rounded for the convenience of further work, but in such a way that after rounding its value would change by no more than 20% in one direction or another from the average value. This value is a single indicator of the level of materiality that the auditor can use in his work.

Example of calculating the level of materiality:

Materiality level calculation table

Column 2 records indicators taken from the enterprise’s financial statements. The indicators in column 3 should be determined by the internal standards of the audit firm and applied on an ongoing basis. Column 4 is obtained by multiplying the data in column 2 by the figure in column 3 divided by 100%. Then the arithmetic mean of the indicators from column 4 is calculated:

(1064 + 2719 + 2561 + 2050 + 2027) / 5 = 2084 thousand rubles.

Pay attention to the minimum and maximum values ​​in the calculation. Because if they differ by more than 30% from the calculated indicator, then they must be discarded during the calculation.

The smallest value differs from the average by:

(2084 - 1064) / 2084 x 100% = 49%, i.e. almost doubled.

The largest value differs from the average by:

(2719 - 2084) / 2084 x 100% = 30%.

Since the value is 1064 thousand rubles. differs significantly from the average, and the value is 2719 thousand rubles. - not so much and, in addition, the second highest value is 2561 thousand rubles. is very close in value to 2719 thousand rubles, then in further calculations the smallest value should be discarded and the largest should be left. The new arithmetic mean will be:

(2719 + 2561 + 2050 + 2027) / 4 = 2339 thousand rubles.

It is permissible to round the resulting value to 2500 thousand rubles. and use this quantitative indicator as the materiality level value. The difference between the materiality level before and after rounding is:

(2500 - 2339) / 2339 x 100% = 7%, which is within 20%

Audit risk is associated with the level of materiality. The standard “Assessment of audit risks and internal control carried out by the audited entity” is devoted to this issue.

Auditor risk (audit risk) means the likelihood of the presence in the financial statements of an enterprise of undetected significant errors and (or) distortions after confirming its accuracy or the likelihood of recognizing significant misstatements in it, while in fact there are no such misstatements.

Audit risk - This is the business risk of the auditor (audit firm), which is an assessment of the risk of ineffectiveness of the audit. Audit risk is based on an assessment of the risk of ineffectiveness of the client’s accounting system, the risk of ineffectiveness of the system internal control client, the risk of auditors not identifying client errors.

Audit risk consists of three components: intra-company risk; control risk; risk of non-detection.

The auditor is required to study these risks in the course of work, evaluate them and document the results of the assessment. Audit risks are assessed using at least three ratings: low, medium and high.

Auditing organizations may decide to use a greater number of gradations in their activities when assessing risks or to use quantitative indicators (percentages or fractions of a unit) to assess risks.

When conducting an audit, the auditor must take the necessary steps to reduce audit risk to a reasonable minimum level. The risk can be completely eliminated by conducting a comprehensive audit. However, with large volumes of enterprise activity, it is not possible to check everything in a continuous manner. Therefore, to reduce risk, the auditor must use more detailed audit procedures.

Intra-business risk (pure risk) is understood as the likelihood of significant distortions occurring in an accounting account, balance sheet item, same-type group of business transactions, or reporting of the enterprise as a whole before such distortions are detected by means of the internal control system or subject to the assumption of the absence of such means.

On-company risk characterizes the degree of exposure to significant violations of an accounting account, balance sheet item, a similar group of business transactions and reporting as a whole of the audited enterprise.

When assessing intra-economic risk in relation to the balance sheet and reporting, the auditor must take into account the peculiarities of the functioning and current economic situation the industry in which the enterprise operates; specific features of the activities carried out by this enterprise; honesty of the enterprise personnel who manage and are responsible for accounting and reporting; experience and qualifications of employees responsible for accounting and reporting; the possibility of external pressure on the managers and personnel of the enterprise in order to achieve certain financial reporting indicators at any cost, and more.

When assessing intra-business risk, the auditor can use audit data from previous years, but he must make sure that they are also valid for the year being audited.

On-farm risk is set at a rate from 0 to 100%.

For example, when establishing intra-business risk, the auditor pays attention to accounts receivable. As a rule, according to accounts receivable the risk is set to at least 50%, and if the company has overdue debt, then 100%.

Control risk (control risk) is the likelihood that the enterprise's existing and regularly used accounting and internal control systems will not promptly detect and correct violations that are significant individually or in the aggregate, and (or) prevent the occurrence of such violations.

Control risk characterizes the degree of reliability of the enterprise's accounting system and internal control system.

Control reliability and control risk are complementary categories: high reliability corresponds to low risk, low reliability - high risk.

During the audit, the auditor is required to study and evaluate the enterprise's internal control system, control environment and individual controls. This process is carried out in three stages:

a) general familiarity with the internal control system;

b) initial assessment of the reliability of the internal control system;

c) confirmation of the reliability of the assessment of the reliability of the internal control system.

When analyzing controls, the auditor is required to take into account that some controls may be effective overall but may not be effective at certain periods of time. This may be due to the following factors:

a) short-term replacement of the accounting employee responsible for implementing this control due to vacation or illness;

b) features of the work of the enterprise’s accounting department, reflecting seasonal periods of high-intensity work;

c) the occurrence of errors that are isolated and random in nature.

The auditor is required to take these factors into account, evaluate negative test results of controls, and plan his or her audit procedures accordingly.

The auditor tests controls in all cases except those where he assesses the control risk as high. The more the auditor plans to rely on the entity's controls in preparing the audit report, the more carefully he must test their reliability and effectiveness.

When assessing control risk, the auditor may use historical audit data. However, he is obliged to make sure that they are also valid for the year being audited.

The auditor should reflect the results of the control risk assessment in the general audit plan, and clarifying assessments (if any) in the working documentation for the audit.

Control risk is set at 0 to 100 percent.

It should be borne in mind that, as a rule, this risk is not set to a minimum, since the auditor should not completely trust the internal control system of the enterprise.

Detection risk refers to the likelihood that the audit procedures used by the auditor during the audit will not detect violations of a significant nature.

The risk of non-detection is an indicator of the effectiveness and quality of the auditor’s work and depends on the procedure for conducting a specific audit, as well as on the qualifications of the auditors and the degree of their previous familiarity with the activities of the audited enterprise.

The auditor is obliged, based on an assessment of intra-business risk and the risk of controls, to determine the risk of non-detection that is acceptable in his work and, taking into account minimization of the risk of non-detection, to plan appropriate audit procedures.

Exists Feedback between the risk of non-detection and the combination of intra-company risk and control risk:

· high values ​​of intra-business risk and control risk oblige the auditor to organize the audit in such a way as to reduce, if possible, the magnitude of the risk of non-detection and thereby reduce the overall audit risk to an acceptable value;

· low values ​​of intra-business risk and control risk allow the auditor to accept a higher risk of non-detection during the audit and at the same time obtain an acceptable value for the overall audit risk.

If the auditor wants to reduce detection risk, he must increase the number of audit procedures; increase the time spent on verification; increase the volume of audit samples.

If the auditor concludes that he is unable to reduce detection risk to an acceptable level with respect to significant balance sheet items or a similar group of business transactions, he may use this as a basis for preparing an audit report based on the results of the audit other than an unqualified positive one.

When planning an audit, the auditor is required to take into account factors that may cause significant misstatements in the financial statements. Based on what value of the level of materiality the auditor accepts for verification and what are the features of balances and turnover in the accounting accounts, he is obliged to decide which accounting items should be studied especially carefully and in which cases it is necessary to use an audit sample and analytical procedures in order to reduce overall audit risk to an acceptably low level.

The auditor must take into account that there is an inverse relationship between the level of materiality and the degree of audit risk.

The values ​​of intra-economic risk remain constant and can change only if, during the audit, objectively existing facts are discovered that were not taken into account during the preparation of the general audit plan.

There are two main methods for assessing audit risk:

1) evaluative (intuitive);

2) quantitative.

The evaluative (intuitive) method most widely used by Russian audit firms is that auditors, based on own experience and knowledge of the client, determine audit risk based on the statements as a whole or individual groups of transactions as high, probable and unlikely and use this assessment in planning the audit.

The quantitative method involves the quantitative calculation of numerous audit risk models. The simplest model for calculating audit risk is the basis for audit planning, as it allows you to understand the relationship between the individual components of audit risk and assess the scope of testing.

Pre-determined amount of audit risk reflects the auditor's appetite for risk and his understanding of the economic environment in which he operates. If, for example, it is unlikely that the client will be able to bring legal action against the auditor or take other actions that could materially affect its reputation, then the predetermined amount of audit risk may be large.

To judge the acceptable level of audit risk, analyze the liquidity of the enterprise, changes in the level of profits and losses for previous years, the methods of financing used (if the company largely uses external sources financing and the debt structure does not correspond to the structure of assets, then the likelihood of financial difficulties is higher), the nature of the client’s operations (the company may be engaged in very risky activities), and the competence of management.

In addition, the amount of audit risk depends on:

· the extent to which users rely on financial statements in their decision-making process;

· distribution of ownership (if the holders of shares are a limited number of owners, they have alternative ways of obtaining information);

· the client’s financial position (if it is unstable, then there is a high probability that the auditor will have to prove the quality of his audit).

Audit risk is a business risk of an audit firm, so its value reflects the firm’s position in the market audit services and the degree of market competitiveness, which also needs to be taken into account.

After establishing the amount of audit risk, the auditor evaluates the factors on which the net (final) risk depends. First of all, the specifics of the enterprise’s activities are assessed. For example, the inventory obsolescence rate of an electronics manufacturing plant is higher than that of a steel mill; the possibility of requesting a loan for a small enterprise is less than for a large bank, etc. An important factor is the reputation of management: auditors act quite risky by collaborating with dishonest management. In addition, the auditor must understand the client's motivation in certain circumstances: if the manager's compensation is set as a percentage of profits or the bond issue decision contains restrictions on the ratio of current assets to liabilities, then the likelihood of deliberate misstatements of relevant information increases.

The results of previous audits may indicate potential errors in the current period. Typically, in the absence of previous audit results, the net risk is set to high level.

The likelihood of reporting distortions is also high in the case of transactions between related parties and in cases where the transactions are not typical for the company.

The reflection of some reporting items requires estimates (for example, doubtful debts), the accuracy of which depends, in turn, on the training of the company’s personnel, therefore, a large net risk value is often established for these items.

In situations where it is quite easy to use company assets for personal purposes ( cash, easy to implement securities), the amount of net risk also increases.

The amount of net risk is always directly proportional to the amount reflected in the this account, as well as the sample size, and depends on the nature of the sample elements.

This planning stage consists of the following steps: during the initial audit, the auditor, based on the fundamental factors - the integrity of management and the existence of an adequate system accounting records- must evaluate the possibility of conducting an audit. If the audit is not possible, the auditor refuses it. If the auditor believes that the audit can be carried out, then the next step will be a preliminary assessment of the risk of ineffectiveness of the internal control system in relation to each type of operation and determining the goals of internal control at the enterprise.

Risk accompanies any activity. For a business enterprise, risk is a change in market conditions (for example, consumer tastes), violations on the part of counterparties, actions of external forces (for example, speeches by trade unions demanding increased wages). Audit risk involves forming an incorrect opinion regarding a company's financial statements.

There is no practical way to reduce audit risk to zero. The auditor decides whether the degree of risk is acceptable based on the user's expectations. The opinion expressed in the audit indicates to the user that professional standards have been met and significant evidence has been accumulated and evaluated to support that opinion. The auditor should plan the audit so that the risk of poor judgment is minimal.

Therefore, the first priority in organizing an audit is to limit audit risk in individual accounts or transactions so that, at the end of the audit, the overall audit risk is reduced to a sufficiently low level or, conversely, so that the auditor’s level of confidence in his conclusions is high enough to allow him to express an opinion on the financial statements as a whole. The secondary objective is to achieve the desired confidence in the most effective way.

To reduce audit risk, the rule should be: the more the auditor checks the elements intended for full examination, and the more convincing the analysis, the smaller the sample size will be.

When conducting audits, there is always a risk associated with the possibility of giving an incorrect conclusion. Audit risk depends on many factors, both related to the subject being audited and determined by the audit methodology. In particular, it is influenced by the level of materiality, i.e. the amount of error in accounting, if exceeded, the auditor has grounds to recognize the reporting as unreliable. Let's consider how materiality and audit risk are related.

Relationship between materiality and audit risk

Regulatory documents governing auditing activities regulate, among other things, such concepts as materiality and audit risk. Standard No. 4 “Materiality in an Audit”, approved by Decree of the Government of the Russian Federation No. 696 of September 23, 2002, indicates, in particular, that there is a relationship between materiality and audit risk.

The more stringent the requirements for the audit results, the higher the likelihood that these requirements will be violated. A decrease in the level of materiality leads to the fact that the auditor must monitor the most minor deviations in the financial statements provided. And, of course, in this case the likelihood that any of the violations will be missed increases.

On the contrary, with a high level of materiality, to ensure the specified accuracy, it is enough for the auditor to track only the largest deviations. Therefore, the risk of drawing incorrect conclusions based on the results of the audit in this case is reduced.

So, we can conclude that there is an inverse relationship between materiality and audit risk.

Managing audit risk using materiality levels

Auditing standards set only the most general rules carrying out inspections. This also applies to determining the level of materiality. The auditor independently chooses the methodology for calculating this indicator. In this case, it is necessary to take into account the amount of audit risk. It essentially represents a set of risks that depend both on the enterprise being inspected and on the methods used by the specialist.

At the audit planning stage, the auditor evaluates the risk components determined by the specifics of the subject being audited. After this, taking into account the information received, the level of materiality is calculated. It should be such that the auditor can ensure an acceptable overall level of risk with the optimal number and complexity of control procedures performed.

Often during the audit process, the auditor, having received Additional information, changes his opinion about the level of “intra-economic” risk. In this case, it is necessary to change the level of materiality so that the risk indicators and audit procedures performed are optimal, taking into account the entirety of the available data.

Conclusion

Materiality in an audit and audit risk are closely related – there is an inverse relationship between them. This relationship is used by auditors to manage risk both when planning and conducting audits.

The type of report largely depends on the auditor’s confidence in whether or not the organization’s financial statements contain material misstatements. Therefore, it is very important to understand which errors, distortions, and inaccuracies made by the subject being inspected are significant and which are not.

Materiality – a qualitative measure is a property of information that makes it capable of influencing the economic decisions of a qualified user. A misstatement of information that exceeds the level of materiality is considered material.

The level of materiality is a quantitative measure. The level of materiality is understood as such an extreme distortion of financial statements, starting from which a qualified user of these statements will not be able to draw correct conclusions on their basis and make informed economic decisions.

This definition is quite subjective, since the assessment of the level of materiality largely depends on the experience and qualifications of the specialist who determines it, on his knowledge of the specifics of the client’s activities and understanding of the degree of responsibility of decisions made by users of financial statements.

The auditor's confidence in the reliability of the expressed opinion on the reliability of the financial statements, even in an unconditionally positive conclusion, cannot be absolute due to a number of factors limiting the completeness and adequacy of the assessments made by the auditor. These factors include:

a) the limited scope of the audit, which must be kept within economically acceptable limits;

b) ambiguity in the interpretation of some norms established by current legislation;

c) the presence of subjective aspects both in the interpretation of certain facts of economic activity and in the preparation of financial statements, as well as in assessing their reliability.

These factors limit the auditor’s confidence in the reliability of his conclusion and force him to express his opinion not with an absolute guarantee, but with an acceptable risk.

Under materiality refers to the magnitude of omissions, inaccuracies or misstatements of fact in accounting information that, in light of surrounding circumstances, make it probable that a judgment made on the basis of that information could change or be affected by the inaccuracy or misstatement of fact.

As defined by the US Financial Accounting Standards Board, materiality - this is the significance of omissions or false statements in accounting information, due to which, under a certain set of circumstances, there is a possibility that a user of accounting information who has experience working with the latter will change his initial opinion about the accounting information, based on trust in it.

The UK Accounting Standards Board considers information to be material if its omission or misstatement could affect a user's economic decision based on the financial statements. Materiality depends on the magnitude of the information under consideration in the specific circumstances of its non-reduction or distortion.

In an audit, circumstances that significantly affect the reliability of the financial statements of an economic entity are recognized as significant.

Materiality can be defined as a criterion of whether the auditor is ready to confirm the reliability of the financial statements of the economic entity being audited. The principle of materiality is determined by the volume of indicators of the information being verified or the nature of the errors made when recording business transactions.

The issue of assessing materiality in an audit lies, first of all, in choosing a specific base, including one or more indicators of financial statements and a method for calculating the quantitative criterion of materiality - the value of the maximum permissible error.

According to some auditors, accurate quantitative assessments of materiality are necessary, while others, on the contrary, avoid strict assessments. Some auditors believe that when assessing materiality, it is advisable to take into account not only quantitative, but also qualitative aspects of information, such as the type of activity of the client (production, trade, Agriculture, intermediary activities, etc.), the stability of its position in the market, financial condition. For example, a certain amount may be insignificant in relation to the volume of gross profit, but be important in identifying development trends.

To apply materiality for each individual account, the concept is used maximum permissible error . By setting the acceptable error below the planned materiality, the auditor reduces the likelihood that the sum of discrepancies for individual accounts (both identified and undetected) will exceed the materiality level. The size of the permissible error is taken into account when developing a verification program for each specific account and, above all, when determining the sample size.

Typically, the acceptable error is set at 50~70% of the planned materiality. However, the maximum permissible error should not be too low, because this may lead to unreasonable overestimation of the scope of audit procedures.

At the planning stage, possible accounting errors can only be assessed as shares or percentages of any indicator (or group of indicators). In the future, during audit procedures, the relative value of materiality will be transformed into an absolute value by calculating the amount of undetected errors. When summing up the results of the audit, the aggregation of all detected misstatements will make it possible to find an updated level of materiality, usually adjusted in comparison with the planned one.

Auditors usually do without precise quantitative estimates. It is believed that a deviation of up to 5% is insignificant, and more than 10% is significant.

At the planning stage, it is also necessary to establish the minimum amount of possible corrective accounting entries that are proposed to be made by the client to eliminate errors and inaccuracies found during the audit. The level of proposed corrective accounting entries is established based on the existing audit experience, analysis of the enterprise’s internal control system and the expected frequency and magnitude of errors in accounting registers.

It is desirable that this level be quite low, since errors not taken into account by the auditor due to their insignificance can, in total, significantly affect the accuracy of the preparation of financial statements. At the same time, if the level of proposed corrective entries is set at too low a level, then this approach can lead to unnecessary and ineffective work of auditors and large losses of time. Although a special procedure for determining the planned level of materiality is not regulated, there are certain rules that can be used in assessing the level of materiality when planning an audit. At the beginning of the audit, the main task is to establish an estimate of the amount that should be considered material to the financial statements.

An audit firm may establish during an audit a single indicator of the level of materiality and consider it the maximum value of a possible error for any balance sheet items.

To calculate the planned level of materiality, you can select three categories of indicators:

- accounting accounts;

- balance sheet items;

- financial statements indicators.

In this case, both basic indicators of the current year and average indicators of the current year and previous years can be used.

It is important to identify groups of significant accounts or groups of accounts. These are accounts containing errors that significantly affect the content of the financial statements.

The criteria for classifying accounts as significant are:

· presence of a balance exceeding the permissible error;

· large account turnover during the reporting period;

· presence of unusual wiring.

Recognizing an account as significant does not necessarily mean that additional audit procedures will be required, but rather indicates the need to pay more attention to the movement of funds in this account and risk assessment.

In addition, all information collected in previous stages of the audit is used to determine the significance of the account. This information is also useful for planning account-specific tests.

Sources of information associated with significant accounts can be classified as follows:

1) documents containing subjective assessments of the client’s personnel (for example, the amount of the reserve for doubtful debts);

2) documents related to routine data processing, which provide detailed information about transactions performed, usually reflected in accounting registers (for example, records of accounts receivable or payable, cash flow, settlements with personnel for wages, fixed assets, etc.). P.);

3) documents related to non-traditional data processing, which include documents on operations carried out with less frequency (for example, inventory records, depreciation calculations, etc.). Usually, various approaches to these types of information sources are considered.

Thus, it is believed that if a certain operation is carried out and accordingly reflected daily, then such information should not contain significant errors. And, conversely, the fact that any calculations are used in accounting (that is, the subjectivity of the assessment is quite high) leads to an increase possibility of errors.

Each of the three groups can be selected as a base, or two or all three groups can be taken at once. In each specific case, the choice of certain accounts, articles and indicators will depend on both qualitative aspects financial information, and on its quantitative characteristics.

Since the reporting itself and audit report are addressed to numerous users, then the choice of materiality base is determined by the importance of the indicators for users of financial statements. However, in order to choose single base for all user groups whose interests are different, and to determine the most important indicators under different conditions and results of financial and economic activities, it is obviously necessary to rely on a relatively stable base, the indicators of which are least susceptible to industry-wide and general economic risks and (or) most predictable in relation to to the factors of enterprise activity.

For example, shareholders are interested in receiving dividends, and therefore profits. The value of the latter indicates the development of the organization and its ability to meet its obligations. Therefore, as the basis for materiality calculations, the auditor will choose gross profit enterprises. From another point of view, the profit before tax indicator can be used (if the company shows relatively stable results). In this case, the initial figure is taken to be 5% of the gross profit. Other bases for calculating this indicator may be turnover (0.5-1%), share capital (5%), balance sheet currency (0.5-2%).

The choice of a basis for calculating materiality consists in determining the accounting indicators that are of particular importance to users and at the same time take into account many factors: the specifics of the industry, the form of ownership, the scope and scale of activity, financial results and balance sheet structure.

Having established the basis of indicators, the auditor must subsequently determine how the quantitative criterion of materiality will be calculated. In this case, we can talk about two ways to calculate them:

In the first case, a single indicator of the level of materiality is established for all applied groups of indicators.

In the second, several values ​​of the level of materiality are set; for each basic indicator, a relative value of materiality is selected in the form of a specific percentage or percentage series.

If one indicator is selected as the materiality basis, the level of materiality as such is not calculated. The indicator is set as a certain percentage of the maximum permissible error. A certain difficulty with this option of forming a base is the issue of assessing the reliability of all financial statements, that is, the materiality as a whole based on the individual value of the materiality of one indicator. The more complex and varied the facts of the economic life of an enterprise, the more volatile the results of its financial and economic activities, the more accounting reporting indicators must be taken as the basis for assessing materiality.

The qualitative aspect of information contains quite a lot of factors that the auditor must take into account when determining and assessing materiality, for example, the type of activity and scale of the business, competitiveness, adequacy of adopted accounting policy real economic conditions.

The auditor is obliged to take into account the qualitative side of materiality in order to determine whether the deviations of financial and business transactions noted during the audit from the requirements of the relevant regulations in force in the Russian Federation are or are not of a material nature.

However, at the stage of completion of the audit, that is, when all procedures have been carried out and audit evidence has been collected, deviations noted during the audit are assessed from the perspective of their quantitative impact on the financial statements. In this case, it is necessary to check whether the detected deviations individually and in total (taking into account the predicted value of undetected deviations) exceed the quantitative criterion - the level of materiality.

When assessing the audit results, it is impossible to separate the qualitative and quantitative criteria of the materiality aspect. Detected errors and deviations should be assessed in a complex of qualitative and quantitative factors. The qualitative aspect of materiality refers to characteristics of the audit evidence collected that go beyond the quantitative measurement of both detected and predicted errors.

In accordance with Russian and international standards, the auditor is independent in the choice of audit methodology, but is responsible for detecting significant errors in the financial statements. It is for this reason that the auditor must determine the level of materiality independently. In other words, when planning an audit of a particular enterprise, the auditor needs to set the limits of the materiality of those errors that in the aggregate will distort the financial statements.

When applying a materiality level indicator determined by calculation, it is necessary to take into account that some accounts may contain more errors than others, and probable distortions in financial statements items may be of a multidirectional nature. In this case, the auditor must rely only on his own professional judgment. Some auditors find it more appropriate to establish materiality levels for significant reporting items, or for those items specific gravity which in balance currency exceeds 1%.

Others believe that if a single materiality level is less than 3% of the balance sheet currency, materiality levels should be calculated for each significant item balance sheet and income statement.

The practical significance of issues of assessing materiality requires each audit organization to have its own methodology regulating the procedure for determining the level of materiality of balance sheet items. It should indicate the specifics of choosing a materiality base, materiality criteria in rubles or percentages, the calculation procedure, and possible adjustments.

An analysis of the work of Russian audit firms showed that today the level of materiality is determined by audit firm specialists in several ways.

A single level of materiality is determined based on the main indicators of the audited statements. A single level is distributed among significant items of the balance sheet in proportion to the specific weight of these items in the currency of the balance sheet.

The disadvantage of this method is the standard level of error as a percentage of balance sheet items, which does not allow taking into account the risks of the internal control system, the value of which may vary in certain areas of accounting.

In addition, auditors determine the planned materiality limit of a reporting error as the total value of the materiality limits established in relation to significant balance sheet items.

When determining the latter, the following factors are taken into account:

the overall value of audit risk (the higher the risk, the lower the limits of materiality are set, therefore, the sample size increases and the risks of error during the audit are reduced);

absolute value of the item (as the share of the item in the balance sheet currency increases, the standard materiality limit of 5-10% decreases);

the required depth of verification of the item (for accounts requiring a more detailed verification, the standard materiality limit is reduced);

planned time and effort to check the article (the lower the planned materiality limit, the greater the scope of the check), etc.

The influence of some factors is opposite (for example, the level of audit risk and the amount of labor costs), therefore the planned limits of the article’s error are found using the experience and intuition of the auditor. The total limit of materiality of a reporting error calculated in this way should not exceed the value established by the internal company standard.

It is also possible to find preliminary limits on the materiality of errors in relation to the items in the Profit and Loss Statement.

The disadvantage of the considered methods for establishing the level of materiality is that they ignore the fact that there is an inverse relationship between the level of materiality and risk: the higher the level of materiality, the lower the overall audit risk and vice versa.

Failure to take this relationship into account has a negative impact on the nature, timing and extent of audit procedures. When planning, the auditor evaluates materiality in relation to the accounting accounts, so the auditor needs to establish the level of materiality in relation to the risk of the accounting system. It should be noted that the very fact of checking the accounting system makes it possible to establish the presence of probable errors and deviations in the financial statements, since the assessment of the state of the control environment and the regularity of audit procedures at the enterprise serves as the basis for the auditor to plan the degree of detail and selectivity of audit procedures. The relationship between the risk of the accounting system and the qualitative indicator of materiality is presented in Table 1.

Accounting system risk refers to the possibility of errors occurring in the accounts. It is difficult to predict in advance in which accounts errors are most likely and of what nature they are. In this regard, the time required to check certain account balances cannot be known in advance.

Having determined the dependence of the qualitative indicator of materiality on the risk of the accounting system, we propose to find the level of materiality as follows (see Table 2):

1. The value of the basic indicators is established based on the sections of the audit program according to the accounting accounts.

2. The final level of materiality is determined using the arithmetic average based on all sections of the program. According to the data in Table. 2, the arithmetic mean of the indicators in column 5 will be (341 + 164 + 437 + 708 + 646 + 304 + 108 + 398 + + 731 + 462 + 84 + 664 + 179 + 264 + 2770 + 309 + + 63 + 1057): 18 = 538 thousand rubles.

The resulting quantitative indicator can be used as a materiality level when planning an audit.

Today, the problem of assessing materiality in auditing has become particularly relevant due to the need to apply the Federal rules (standards) of auditing activities in auditing practice. The practical significance of materiality assessment issues requires each audit firm to develop its own methodology for selecting a materiality base and a method for calculating its value.

At the same time, it is proposed to evaluate the level of materiality using the risk indicator of the accounting system, establishing its dependence with a qualitative indicator of materiality. It seems that this will allow us to plan the audit in more detail and objectively reduce labor costs.

Since the main result of the auditor’s activity is his opinion about the reliability of the financial statements, expressed in the conclusion, the audit risk is associated with the fact that this opinion may turn out to be erroneous.

Thus, audit risk is the probability of the auditor recognizing that the financial statements are reliable even though they contain undetected significant errors(or the likelihood that the auditor will admit that the financial statements are unreliable, although they do not contain significant errors).

Audit risk depends both on factors inherent in the economic entity being audited and on factors inherent in the audit firm. To a large extent, the risk also depends on the fact that, due to the need to keep the audit within certain time and economic constraints, it is usually carried out selectively. The selective nature of the audit means that in the vast majority of cases, the auditor does not check all of the entity’s documentation, but a selection from it.

After examining the organization of accounting and assessing the reliability of the internal control system, it is important for the auditor to determine the degree of audit risk. In the commonly used sense, the word “risk” (French. risk, Italian risco) – it is a measure of the danger of losing something. Risk cannot be excluded, since it is an objectively existing quantity that shows the probability of the occurrence of certain events that affect final result, but it can be minimized.

Business risk, in turn, can be divided into the risk of the customer of audit services and the risk of the auditor (audit organization).

Under risk of the customer it is understood that the likelihood of circumstances beyond the auditor’s control of the client’s business activity influencing the deterioration of its financial position, while the auditor (audit organization) confirmed its stability, i.e. the auditor confirmed the client’s reporting, but in fact it contained significant errors and distortions.

Auditor risk(audit organization) is the likelihood that there is a risk of conflict between the auditor and the client, regardless of the results of the audit performed and the audit report presented. This may be influenced by a number of the following factors (circumstances):

· probability lawsuits in relation to the auditor;

· timing of the audit;

· competitiveness of the auditor;

· the client's market position and exposure to his financial position external factors;

· financial condition of the client;

· qualifications of accounting service and internal control specialists, etc.

Entrepreneurial risk of the auditor is that the auditor may fail due to a conflict with the client even if the audit report presented is positive. This risk depends on the following factors:

· competitiveness of the auditor;

· likelihood of lawsuits against the auditor;

· financial condition client;

· the nature of the client’s operations;

· competence of the client’s administration and accounting personnel;

· timing of the audit, etc.

Under audit risk understand the likelihood that the auditor will make an incorrect conclusion about the reliability of the financial statements.

Based on the definitions of audit risk types existing in the economic literature, they can be generalized in three areas (Table 9).

Table 9.Generalization of types of audit risk
in economic literature

The product of the values ​​of the three types of audit risk given in table. 9, will correspond to the level of overall audit risk. It is defined as the probability of forming an incorrect opinion and, as a consequence, drawing an incorrect conclusion based on the results of the audit. The auditors understand that it is impossible to completely eliminate the risk, so they set an acceptable level, from their point of view, of 5%. This means that five out of a hundred reports signed by the auditor contain incorrect information on controversial issues. Sometimes in the professional literature a “confidence level” indicator of 95% is given; it is called the “magic number of audit risk”. Setting this indicator at a lower level may have a negative impact on the competitiveness of the audit firm.

The level of total audit risk is influenced by the following factors:

· the scale of the client’s economic activity (the larger the volume of transactions in the organization, the more widely its accounting statements should be used and, accordingly, the more priority when establishing the level of risk is the opinion of users about the reliability of these statements);

· organizational and legal form of a business entity ( accounting reports open joint stock companies enjoy greater trust from shareholders than closed ones, since they have a higher degree of internal control due to the presence of owners whose interests do not always coincide and who, for this reason, are forced to control each other);

· capital structure and presence of liabilities (if the reporting shows large sum obligations, then it will be more widely used by real and potential creditors; It is the creditors who will be the consumers of the reporting data, which they are secretly guided by when establishing the level of risk).

The level of risk is inextricably linked with the problem of the volume of checks for the materiality of transactions reflected in accounting. If the risk of identifying an error in any transaction is high, the auditor should conduct as many detailed checks as possible to reduce it.

Overall audit risk includes internal risk, control risk and detection risk.

Internal risk(VR) - the likelihood that the balance sheet account data or individual business transactions do not correspond to reality, since they contain unreliable information, which by itself or together with other unreliable information according to other balance sheet accounts or business transactions distorts the accounting (financial) statements and accounting items balance

Control risk(KR) – the probability that unreliable information is not detected or not promptly prevented by the internal control system. In this case, the independent auditor must evaluate the effectiveness of the internal control system in terms of its ability to prevent or detect errors. To do this, he must familiarize himself with the structure and evaluate the effectiveness of both its individual links and as a whole. Control risk consists of three elements: the control environment, the accounting system and controls.

Understanding the significance of internal and control audit risks at the level of accounts and reporting items, the auditor determines the appropriate values ​​of detection risk.

Risk of non-detection(RN) – the likelihood that the audit procedures used by the auditor during the audit will not detect real-life violations that are significant individually or in aggregate. This risk is established depending on the elements being checked: one for inventories, the second for debtors, the third for fixed assets, etc.

The value of the indicator is influenced by the test repetition factor. If the auditor is not conducting an audit with a client for the first time, then he is better acquainted with the peculiarities of the business and knows most of the bottlenecks. If the audit is carried out for the first time, then the risk of the auditor not detecting an error is higher.

The auditor's work should be structured in such a way as to reduce audit risk to a relatively low level.

Materiality in an audit is circumstances that significantly affect the reliability of accounting (financial) statements.

According to the rule of auditing activities of the Republic of Belarus “Materiality in an audit”, approved by Resolution of the Ministry of Finance of the Republic of Belarus dated March 6, 2001 No. 24 (as amended by Resolution No. 159 dated October 28, 2008), the level of materiality is the total amount of permissible misstatements of accounting data ( financial statements, which does not affect the quality of decisions made by users of accounting (financial) statements based on these statements.

Information about individual assets, liabilities, income, expenses and business transactions is considered material if its omission or distortion may affect the economic decisions of users of the accounting (financial) statements of the audited entity made on its basis. Materiality depends on the value of the accounting (financial) reporting indicator and (or) error assessed in the event of its omission or distortion.

The assessment of materiality is a matter of professional judgment of the audit organization.

When developing a procedure for determining the level of materiality, the audit organization should be guided by the following:

· strive to reduce the influence of subjective factors on the form of expression of the auditor’s opinion;

· take into account the variety of activities (financial and economic operations) of the audited entities;

· provide the opportunity for rational and effective use the established level of materiality both from the point of view of the labor intensity of the audit and from the point of view of a reliable basis for decision-making by users of accounting (financial) statements;

· ensure uniformity of principles and calculations, allowing auditors to different experiences and qualifications to obtain approximately the same results.

When determining the level of materiality of an audit organization, it is necessary to:

· select indicators of the accounting (financial) statements that characterize the financial and economic activities of the audited entity, for which the level of materiality will be established (basic indicators);

· establish a level of materiality for each of the selected indicators (basic indicators) or a single level of materiality as a whole for the accounting (financial) statements.

An acceptable level of materiality is established by the audit organization when developing an audit plan in order to identify misstatements that are significant from a quantitative and qualitative point of view.

When determining the quantitative side of materiality, the audit organization must assess whether, individually and (or) in total, the detected and expected distortions in the indicators of the accounting (financial) statements exceed the level of materiality established for these statements.

When determining the qualitative side of materiality, the audit organization must determine whether the inconsistencies noted during the audit in the procedure for carrying out financial and economic transactions by the audited entity with the requirements of the legislation of the Republic of Belarus are of a significant nature. Examples of qualitative distortions are:

· insufficient or inadequate description (formation) of accounting policies, when there is a possibility that the user of the accounting (financial) statements will be misled by such a description;

· violations of regulatory legal acts of the Republic of Belarus governing the activities of the audited entity, which are insignificant in quantitative terms, but there is a possibility that the subsequent application of sanctions could have a significant impact on the financial position of the audited entity.

The value of the level of materiality determined at the planning stage of the audit, the factors that influenced its value, as well as adjustments to the value of the level of materiality during the audit, accompanying calculations and detailed arguments for the need for such adjustments must be reflected by the audit organization in the working documentation.

The audit organization needs to consider the possibility of misstatements in relation to relatively small amounts, which together can have a significant impact on the reliability of the accounting (financial) statements of the audited entity. So, an error in compilation accounting entry at the end of the month may indicate a possible material misstatement of the accounting (financial) statements, which will arise if such an error is repeated every month.

The level of materiality established by the audit organization is applied:

· when determining the nature, timing and scope of audit procedures;

· when assessing the consequences of misstatements.

There is an inverse relationship between materiality and audit risk, i.e. the higher the level of materiality, the lower the level of audit risk, and vice versa.

The inverse relationship between materiality and audit risk is taken into account by the audit organization when determining the nature, timing and scope of audit procedures. If during the audit the audit firm determines that the acceptable level of materiality is higher than the level established at the audit planning stage, the audit firm should change the nature, timing and extent of planned substantive procedures to reduce the risk of undetected material misstatements.