Considering Multiple Materialities for Account Combinations in Audit Planning and Evaluation: A Cost Efficient Approach

Abstract

An analytic framework is provided for incorporating different user perspectives on materiality into the audit process. The framework serves as a tool for disaggregating materiality to specific accounts based on materiality criteria for accounts and account combinations. To improve audit efficiency, the planning method incorporates the relative cost of auditing various account balances. It extends existing models of audit risk and materiality by considering explicitly the materiality of account combinations (sums and ratios) to enhance audit effectiveness.

Keywords: Audit Risk, Materiality, Financial Ratios, Aggregation, Evidence

JEL Classification: C11, C13, C15, C44, D83, M40, M41, M49