Explain how you would determine the overall materiality and performance materiality for a new audit client. What factors would you consider, and how would you document your conclusions?
A core Audit & Assurance interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
I would determine the overall materiality and performance materiality by considering factors such as the company's size, industry, and financial condition, as well as the auditor's understanding of the company's business and operations. I would also consider the results of analytical procedures, such as financial statement analysis, to identify potential areas of risk. I would document my conclusions by preparing a written summary of the materiality determination, including the factors considered and the basis for the conclusions.
WHAT INTERVIEWERS LISTEN FOR
- ✓Determine overall materiality and performance materiality
- ✓Consider factors such as company size and industry
- ✓Document conclusions in written summary
COMMON MISTAKES
- ✗Not considering relevant factors
- ✗Not documenting conclusions
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