Adoption of PSA 320 on Audit Materiality

PSA 320 sets the standards for auditors in the Philippines regarding the determination and application of materiality during an audit.
It provides guidance on how auditors should use materiality to plan and perform an audit, and to evaluate the effect of identified misstatements on the audit and the financial statements.

Materiality is a fundamental concept in auditing that influences the auditor's decisions about the nature, timing, and extent of audit procedures.
PSA 320 requires auditors to establish a materiality level for the financial statements as a whole and, when appropriate, for particular classes of transactions, account balances, or disclosures.
The standard addresses how auditors should reassess materiality throughout the audit as new information becomes available.

"Materiality" refers to the magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced.
The standard emphasizes that materiality is both a quantitative and qualitative concept.

Auditors must use professional judgment to determine materiality thresholds at various stages of the audit.
PSA 320 guides auditors in applying materiality to evaluate the effect of uncorrected misstatements on financial statements.
Auditors are responsible to communicate with management and those charged with governance about materiality considerations and findings.

Compliance with PSA 320 is mandatory for licensed auditors in the Philippines as part of their professional standards.
Proper application of materiality concepts helps ensure the accuracy and reliability of audits, influencing the legal and financial standing of the entities audited.
Failure to comply may result in professional disciplinary actions under PRC regulations and could affect the auditor's liability in legal disputes.