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Differentiation of performance materiality in audit based on business needs

Author

Listed:
  • Audrius Masiulevičius

    (Vilnius University, Lithuania)

  • Vaclovas Lakis

    (Vilnius University, Lithuania)

Abstract

Companies are exposed to various risks. Failure to identify and eliminate them may aggravate the development of companies, some of which may be forced to cease operation. Audit can help in revealing the majority of risks. The auditor has an unlimited access to the information, operational strategy, and in some cases even to commercial secrets, of the auditee. Auditor collects a large amount of different information about the company, but it is used only as much as necessary for formulating a conclusion about financial statements. Upon a closer cooperation of the auditor with the persons in charge of the governance of the audited entity, the client needs can be identified and, once the audit plan is slightly revised, the areas that are within the interest of the client can be analysed in more detail. This article aims to investigate the determination of performance materiality in audit to separate classes of transactions based on the principal areas of importance identified by the business undergoing audit. Based on the data collected during the study, a modified model for determining performance materiality in audit was created which can help to identify better the current and potential risks of the distinguished areas. The application of this model enables carrying out an audit in the areas which are of the highest importance to the users of the audit results more effectively and providing them with more detailed information in the management letter. This would help to identify the substantial risks of the auditee in more detail and on time.

Suggested Citation

  • Audrius Masiulevičius & Vaclovas Lakis, 2018. "Differentiation of performance materiality in audit based on business needs," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 6(1), pages 115-124, September.
    • Handle: RePEc:ssi:jouesi:v:6:y:2018:i:1:p:115-124
    DOI: 10.9770/jesi.2018.6.1(9)
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    References listed on IDEAS

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    1. Takiah Mohd Iskandar & Errol R Iselin, 1999. "A review of materiality research," Accounting Forum, Taylor & Francis Journals, vol. 23(3), pages 209-239, September.
    2. Craig Emby & Nicola Pecchiari, 2013. "An Empirical Investigation of the Influence of Qualitative Risk Factors on Canadian Auditors’ Determination of Performance Materiality," Accounting Perspectives, John Wiley & Sons, vol. 12(4), pages 281-299, December.
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    Cited by:

    1. Teodora-Cezara Porumbacean, 2022. "An Exemplification Analysis Of Materiality Computation Based On The Client'S Specifics," Management Strategies Journal, Constantin Brancoveanu University, vol. 55(1), pages 134-143.
    2. Viktoriya Valeryevna Manuylenko & Marina Aleksandrovna Loktionova & Nina Vladimirovna Lipchiu & Natalia Vladimirovna Sobchenko & Tatyana Andreyevna Sadovskaya, 2018. "Options simulation toolkit for strategic evaluation of corporations' financial potential," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 6(2), pages 871-889, December.

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    More about this item

    Keywords

    materiality; audit; risks; tolerable error; management letter;
    All these keywords.

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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