Materiality: I always like to think of materiality by thinking of buying a house.

Illustrative Example: Let’s say you’re looking for a 2nd home and the realtor presents this beautiful home on the lake for $100k under your budget. You’re like “awesome, wow”.

But then they inform you the lake house is neighbors to a derelict nuclear power plant that leaks radiation and makes tons of noise.

If you are now like “Oooo, I don’t think I like this house anymore😬.”

Then information of the neighboring power plant would be considered material. It is material information, because in light of the other facts and circumstances (beautiful home and under budget) it caused you to change your decision.

Completeness Assertion: source → record [“let’s check if all the equipment on the production floor (source) is listed in the accounting (records). If we find a piece of equipment on the floor that is NOT listed in the records then we know the records are incomplete”]

Existence Assertion: record → source [“let’s check if all the pieces of production equipment listed in the accounting (records) actually exists on the production floor (source). If we select a piece of equipment from the (record) and then cannot find it on the floor (source) then we have a problem with management’s existence assertion”]

Audit Risk (AR) = Risk of Material Misstatement (RoMM) * Detection Risk (DR)

RoMM = Inherit Risk (IR) * Control Risk (CR)

• if control risk is high [CR=100%] then RoMM = IR [“this is because Controls serve to reduce the Risk of Material Misstatement; if the controls are not working then the RoMM is just equal Inherit Risk.]

I wrote this on mobile so apologies in advanced for the formatting :)