AN APPLICATION OF THE MATERIALITY: THE APPROACH OF THE LITHUANIAN AUDITORS

  • Daiva Raziūnienė
  • Gintarė Verbickaitė
Keywords: audit evidence, financial audit, materiality, performance materiality.

Abstract

The gathering of audit evidence requires the external auditor’s responsibility for assessment of the materiality and for making adequate professional judgement when selecting relevant methods for calculations of the materiality parameters, the comparative basis and the percentage rate. The objective of this article is to reveal the methods of determining materiality in the audit practice. Research provides the answers to the following questions: which of the materiality evaluation methods and what level of materiality percentage rates are the most popular and relevant for professional judgment about materiality in a specific audited sector? The research tasks are meant to determine the prevailing values of performance materiality, assess the influence of financial variables and the percentage limits, find out which areas of materiality are important for auditors and what issues of materiality should be given priority. Respondents selected for questionnaire survey are certified Lithuanian auditors and assistants of auditors. The data is analyzed using the IBM SPSS Statistics. By analyzing the data it was found that most of auditors very often use the single rule method. Other methods are respectively used less: variable-size method, combination, absolute-size method and statistical formulas. The factors determining the complexity of materiality issues are 1) the lack of a clear methodology 2) non-consideration of the audited entity size; 3) the uncertainty of materiality in the International Auditing Standards; 4) the ignorance of alternatives for determining the materiality; 5) the lack of consideration of the economic sectors in the methodology for the materiality evaluation. The research data shows that depending on the economic sector the most relevant indicators of manufacturing, trade, construction, transport services enterprises are between 1% and 5% from the main sales revenue, of financial sector 1-5% from interest income, of non-profit organizations 1-5% from funding income.

JEL Codes: M42.

DOI: https://doi.org/10.15544/ssaf.2019.04

Published
2019-05-03
Section
Articles