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Regarding materiality, the textbook says that there are three materiality thresholds we use in audit. The first is "Materiality threshold for the FS as a whole", the second is "Materiality threshold for each account", and the last is "Tolerable misstatement (or CT)."
As a general flow, perform a substantive test, aggregate the misstatements that are above CT by account, and if the total misstatements for the certain account exceed the materiality threshold set for the account, that means the account has material misstatements, which can result in a qualified opinion.
Lastly, if you aggregate the misstatements that are above CT for the entire FS, not for each account, and the total amount exceeds Materiality threshold for the FS, it means the FS has material misstatements, which results in an adverse opinion.
Am I understanding correctly? Would you let me know if you spot any piece to be wrong above? Thank you very much in advance
As a general flow, perform a substantive test, aggregate the misstatements that are above CT by account, and if the total misstatements for the certain account exceed the materiality threshold set for the account, that means the account has material misstatements, which can result in a qualified opinion.
Lastly, if you aggregate the misstatements that are above CT for the entire FS, not for each account, and the total amount exceeds Materiality threshold for the FS, it means the FS has material misstatements, which results in an adverse opinion.
Am I understanding correctly? Would you let me know if you spot any piece to be wrong above? Thank you very much in advance