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CA Ravi Taori
on the financial statements and in forming the opinion in the auditor’s report.

QNO-- Assumption About Users While Determining Materiality New Course – (S24M)
320.01.25 Bhaskar CNO – SA320.020

CA Y, statutory auditor of a company, is in process of determining materiality for financial statements
while planning audit. Since materiality is a matter of professional judgment and is affected by auditor’s
perception of financial information needs of users of financial statements, he is reasonably making certain
assumptions about users of financial statements. Which reasonable matters are likely to be assumed by
him in respect of users?
Answer 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. In this context,
it is reasonable for CA Y, the auditor, to assume that users: -
a) Have a reasonable knowledge of business and economic activities and accounting and a willingness
to study the information in the financial statements with reasonable diligence.
b) Understand that financial statements are prepared, presented and audited to levels of materiality
c) Recognize the uncertainties inherent in the measurement of amounts based on the use of estimates,
judgment and the consideration of future events and
d) Make reasonable economic decisions on the basis of the information in the financial statements.

QNO— Materiality Depends on nature & Circumstances. New Course – (SM25)
320.01.50 Bhaskar CNO - SA320.020
CA A. Raja is auditor of Build Well Forgings Private Limited having a revenue of ₹ 25 crore. The company has
been sanctioned a term loan of ₹ 50 lacs from a bank. However, as at end of the year, only ₹ 1 lac was
availed due to delay in procurement of asset. The financial statements of the company do not disclose
nature of security against which loan has been taken. Schedule III of Companies Act,2013 requires disclosure
in this respect. Discuss, whether non-disclosure of nature of security is material for auditor.
Answer Definition of Materiality
According to SA 200 “Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with Standards on Auditing”, financial reporting frameworks often discuss the concept of
materiality in the context of the preparation and presentation of financial statements. Although financial
reporting frameworks may discuss materiality in different terms, they generally explain that:

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;

Depends on Circumstances
Judgments about materiality are made in the light of surrounding circumstances and are affected by the
auditor' s perception of the financial information needs of users of the financial statements and by the size or
nature of a misstatement or a combination of both

Case Discussion & Conclusion
Schedule III of the Companies Act, 2013 mandates the disclosure of nature of security to loan, hence in the
above case it would be considered material even if only Rs 1 lakh was availed. The amount involved is
irrelevant.

Benchmark- Factors that Old Course –
QNO affect (P16M/SM17/M18R/M19M/M19R/M21E/SM20/SM21/N20E/M22R/M23E)
320.03
Bhaskar CNO SA320.040 New Course – (J25M)
Determining materiality involves the exercise of professional judgment. Discuss stating the factors that may
affect the identification of an appropriate benchmark. Also give examples.
OR
With reference to SA 320, indicate the factors which may affect the identification of an appropriate
benchmark in determining materiality for the financial statement as a whole.

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