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Group Consolidated Audit Materiality Versus Parent Audit Materiality

You are very welcome to this, the second instalment, of Query Of The Week. Each week our technical team respond to a massive number of client queries. The purpose of Query Of The Week is to share with you the most common questions that keep coming up time and time again.

In this Query Of The Week, Neill Doran examines group consolidated audit materiality versus parent audit materiality.

Group Audit Considerations for Irish Auditors

If this Query Of The Week was of interest to you, you will also be interested in our Group Audit Considerations for Irish Auditors webinar.

Full details for this webinar can be found here.

CPD Allocation 1 Hour
Date 23 November 2018
Time 13:30 – 14:30
Fee €38
Presenter Neill Doran – OmniPro
Category Audit

Query Of The Week – Video Transcript

(Please note that this is a direct unedited transcript of the spoken word as recorded on the video) 

One of the most common questions that comes into us in KnowledgeHUB and that we have to deal with on a regular basis in the last few weeks is:

“if I’m preparing an audit of a parent and its consolidated accounts, is the materiality I set at the parent sufficient for the purposes of my consolidated accounts.”

No is the simple answer. It’s on the basis that the auditor’s report encompasses both parent and the consolidated viewpoint. As the numbers can be different in a consolidated viewpoint, you must prepare materiality in the context of the group separate to that of the parent.

ISA 600 says, just as auditors would for the typical single entity audit, group auditors use professional judgment to determine the following. Your group materiality, a lower materiality level for specific account balances, classes of transactions, or disclosures. And group performance materiality, again.

So, our performance materiality, or our overall group materiality and a lower level being a group performance materiality, and then subsequently a threshold for which, from a group audit perspective that there’s misstatements can be clearly regarded as being completely trivial to the presentation of the group financial statements.

So how might we assess our group materiality? Well, we’re going to go into a spreadsheet here. You may be familiar with it as being the materiality assessment that’s part of the Omnipro work program in ARC. And if you notice here, we have 14 million gross assets. We have significant high. All of this is from the viewpoint of consolidated balance sheet. And then likewise a consolidated profit and loss accounts. So here’s our turnover. We’re using our typical materiality benchmark ranges of 1 and 2% gross assets, maybe 1.5% of turnover, or 1% of turnover. These are the figures. This is what we’re assessing as potentially our materiality levels at a group audit level. And then, we’ve then determined an overall group materiality based on our potential benchmarks. We’re using auditor’s judgment to find a level in the region of 200,000. This is based, and here we have our narrative. This is based on 1.5% of gross assets and return of 1% of turnover. So what we’re doing here is we’ve set an overall level. And then, from that overall level we’ve then determined a group performance materiality.

Now, if you have a parent company which is maybe a dormant company that is only a holding company effectively for the shares of the group, then your materiality might still be nonexistent at the parent level. That does not negate your responsibility to have a parent materiality level even though it might be clearly small in nature, you know, less than 500 Euros et cetera. However, you still have to prepare an overall group materiality. That is your requirement when doing group audits and group consolidation.

So that’s our query of the week. If you have an interest in group consolidated audit materiality versus parent audit materiality, join me here on Friday the 23rd of November at 13:30 for our webinar on Group Audit Considerations for Irish Auditors.