FRC Concerns on Materiality
The Financial Reporting Council (FRC) has reviewed the auditors’ judgment on materiality and published their findings that auditors should focus more on the needs and expectations of the users while setting the materiality levels.
The review of Financial Reporting Council recommends a number of recommendations to the audit committees and suggests them to discuss with auditors the basis of setting materiality levels and how these levels reflect the expectations and needs of the users of the financial statements. The regulator says that the auditors must strongly consider that the qualitative factors relating to the requirements of the users of the financial statements should be superseding consideration while setting the materiality levels.
Auditors should make sure that when the materiality level is adjusted for one-off items; such adjustments should be suitable for the circumstances. Auditors should also ensure that they have closely analyzed the risks involved when setting the performance materiality levels. Financial Reporting Council is very keen to make sure that proper care and thorough work has been performed by the auditors while setting the materiality levels instead of just following an off the shelf template made by audit firms while setting materiality benchmarks. Financial Reporting Council has strongly suggested that auditors should improve the accuracy and quality of their materiality levels while reporting the same to the audit committees. Also, auditors should make sure that all the uncorrected misstatements above the materiality levels are collated and reported.
The executive director of FRC, Mr. Paul George said: Our findings should help auditors to understand the value of materiality levels while conducting audits and should help them understand the current practices with regards to the materiality levels followed by big firms. This report should also help audit committees to inquire auditors about the basis of setting their materiality levels in a great way.
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