THE MATERIALITY OF ERRORS AND VIOLATIONS: DEFINITION, METHODS OF ASSESSMENT AND FACTORS INFLUENCING THEIR LEVEL

Abstract

This article provides a detailed examination of the concept of determining the materiality level of errors and violations in the audit system and its significance for forming a well-founded audit opinion. It is argued that establishing the materiality threshold is not a formalized procedure but is based on the auditor’s professional judgment, which is shaped by experience, knowledge of the enterprise’s specific operations, and an understanding of the information needs of financial statement users. It is demonstrated that the process of determining materiality requires consideration of a combination of quantitative and qualitative factors, among which the assessment of audit risk, the nature of potential misstatements, as well as the industry-specific and operational characteristics of the entity play a key role. Particular attention is paid to examining the relationship between the materiality level, audit risk, and the size of the audit sample, which together form the basis for planning and performing audit procedures. It has been established that a change in one of these elements directly affects the others, necessitating their comprehensive coordination during the audit. The impact of fraudulent activities on the materiality assessment process is examined; in particular, it is emphasized that the covert nature of such misstatements complicates their detection and requires a heightened level of professional skepticism on the part of the auditor. It is argued that, in the context of the digitalization of economic processes and the growing volume of information, there is a need to adapt traditional methods of determining materiality to modern auditing conditions. It is noted that combining classical approaches with modern analytical tools allows for increasing the effectiveness of the audit, reducing its labor intensity, and ensuring a higher level of reliability of the auditor’s opinion. It is summarized that improving methodological approaches to determining materiality is a necessary prerequisite for enhancing audit quality and strengthening confidence in financial statements.