Significant lapses in an audit of financial statements w.r.t materiality identified by NFRA

As we know materiality is the most important concept in the audit of financials, as the fundamental concept of “true and fair” revolves around financial information being materially correct. Where any information in the financial statements is omitted or misstated and such information is material, those financial cannot give a true and fair view. Further para 5 of SA 320 states that while conducting audit of financials the concept of materiality applied by the auditor both in planning and 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.

But, following are the instances of lapses that were found by NFRA, while examining the audit documentation of the auditor:

• • Factors considered while determining the performance materiality as per the requirements of SA 320, were not documented.
  • Failure to comply with the requirements of Para 10 of SA 320 i.e. where the lower materiality level would be applicable, then in that case auditor have to identify classes of transactions, account balances or disclosures.
  • Failure to review the materiality working papers per the requirements of SA 220.
  • Failure to understand the mandatory nature of each requirement/para of the SA
  • Failure of engagement partner to document his review of the materiality
  • No evidence to prove that the adequate audit procedures were followed to comply with the requirements of SA 320
  • Casual documentation practices followed by the auditor which is in contravention of Para 8 read with Para A10 of SA 230 i.e. the auditor has to prepare audit documentation in a manner by which an experienced auditor can understand inter alia the nature, timing and extent of the audit procedures, their results, and significant matters arising during the audit
  • WP does not document the name of the person who reviewed it along with the date of review

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