Members Crowe Horwath International - LACPA

1 Lebanese Association of Certified Public Accountants - LACPA Dr. Daoud Sobh Consultant - Crowe Horwath Professional auditors March 23, 2016 Audit Materiality ISA 320 Materiality in Planning and Performing an Audit Crowe Horwath Professional auditors Members Crowe Horwath International March 23, 2016 D. Sobh - Audit Materiality- ISA 320 2 Paragraphs: 14 Paragraph, 13A Application Effective Date: effective for audits of financial statements for periods beginning on or after December 15, 2009. ISA 320 Materiality in Planning and Performing an Audit March 23, 2016 ISA 700 Revised (Excerpts) Forming an Opinion and Reporting on Financial Statements - unmodified Opinion INDEPENDENT AUDITOR S report To the Shareholders of ABC Company [or Other Appropriate Addressee] Opinion We have audited the financial statements of (the Company)

2 , which comprise the statement of financial position as at December 31, 20X1, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 20X1, and (of) its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

3 Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report . We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in [jurisdiction], and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

4 D. Sobh - Audit Materiality- ISA 320 3 11:39 March 23, 2016 Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements , management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

5 TCWG are responsible for overseeing the Company s financial reporting process. Auditor s Responsibilities for the Audit of the F/S Our 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, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.

6 Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. [Date [Auditor Signature and Address] ISA 700 Revised (Excerpts) Forming an Opinion and Reporting on Financial Statements 4 D. Sobh - Audit Materiality- ISA 320 Responsibilities of Management and Those Charged with Governance for the F/S 11:39 March 23, 2016 According to Clarity ISA project of 2009, an outcome of the revision of ISA 320 was two separate ISAs for enhanced clarity: Determining and Using Materiality 5 D.]

7 Sobh - Audit Materiality- ISA 320 ISA 320 Materiality in Planning and Performing an Audit Evaluation of Misstatements Identified During the audit ISA 450 Revised New The concept of materiality links ISAs 320, 450 and 700. It is applied in both planning and performing the audit. 11:39 March 23, 2016 ISA 450 Evaluation of Misstatements Identified During the audit (New) Deals with the auditor s responsibility to evaluate the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements.

8 6 D. Sobh - Audit Materiality- ISA 320 ISA 320 Materiality in Planning and Performing an Audit (Revised) Deals with the auditor s responsibility to apply the concept of materiality appropriately in planning and performing an audit of financial statements. ISA 700 Forming an Opinion and Reporting on Financial Statements Deals with the auditor s responsibility, in forming an opinion on the financial statements, to conclude whether reasonable assurance has been obtained about whether the financial statements as a whole are FREE from material misstatement.

9 Determining and Using Materiality 11:39 March 23, 2016 What is Materiality? 7 D. Sobh - Audit Materiality- ISA 320 Materiality 11:39 March 23, 2016 Judgments about materiality are made in light of surrounding circumstances, and are affected by the size or nature of a misstatement, or a combination of both; What is Materiality? 8 D. Sobh - Audit Materiality- ISA 320 ISA Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of USERS taken on the basis of the financial statements; Definition of materiality is replaced by description of common characteristics, often discussed in financial reporting frameworks (FRFs) the concept of materiality in the context of the preparation and presentation of financial statements.

10 11:39 March 23, 2016 The auditor s determination of materiality: is a matter of professional judgment, and is affected by the auditor s perception of the financial information needs of users of the financial statements. as a GROUP, and not their individual needs. Determining and Using Materiality 9 D. Sobh - Audit Materiality- ISA 320 ISA 11:39 March 23, 2016 The concept of materiality is applied by the auditor both in: 1- planning and 2- performing the audit, and in Evaluating the effect of: Identified Misstatements on the audit and of, Uncorrected misstatements (if any) on the financial statements, and in Forming the opinion in the auditor s report .