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How do you set materiality levels for period-ending accounting estimates?

"How do you set materiality levels for period-ending accounting estimates? Is this something you should agree in advance with your auditors?"

This question was asked at a recent webinar, now available on-demand: "7 Keys to a Fast Close - Save Resources and Time for Improving Results"

Please add your thoughts about it below. Thanks!

Answers

Jon Paul
Title: President
Company: Value Added Finance Resources
(President, Value Added Finance Resources) |

It's good to check in with the outside auditors on the materiality level for the quarterly and year end numbers based on your forecasted PL and Balance Sheet. You can then use this a guide for what materiality level you want to use for the monthly numbers as well. It's possible you will use a tighter level on the shorter time periods, since you will typically earn less money in a month than over the whole year.

Anonymous
(cfo) |

It's been a number of years since I was an auditor but we didn't share materiality guidelines with clients. Knowing your materiality estimates may encourage unscrupulous clients to manipulate the numbers. It would be great if someone from the auditing profession would weigh in.

Lynn Fountain
Title: MBA CGMA CRMA, Past Chief Audit Executiv..
Company: Business Consultant
LinkedIn Profile
(MBA CGMA CRMA, Past Chief Audit Executive, Business Consultant) |

It depends on who your external accounting firm is at to whether they will share materiality $$ thresholds with you. Some will share while others are more cautious. Also, keep in mind the auditors must consider other qualitative factors about the estimates including appropriate and reliable methodology to arrive at the estimate, adequacy of skill level of those making the estimates, reliable source information etc.

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