To put value to a non-quantitative entity is a difficult task as such. But, to give value for an audit review, numerable factors and stakeholders are involved.
FREMONT, CA: Determining the significance of any transaction or the materiality is mostly a challenge in auditing and financial reporting exercises. This particular challenge transforms into an even daunting one if the quantitative measurements are not precise or unavailable, to begin with. Several challenges are related to materiality and are growing to become a crucial concern, one that needs to be dealt with as demands have risen. These demands ask for any or a particular type of attestation for the non-quantitative entities. Considering an example—an entity’s sustainability reporting is not a difficult task. But, the determination of materiality concerning quantitative measurements like fuel costs and gas emissions is complicated but can be fulfilled. The same task becomes much challenging when materiality related to the competence of employees or fair labor practices needs to be determined and discussed in a sustainability report.
In a world where stakeholders place immense trust and importance on information about an entity, precise calibration of the subject matter is vital. The material provided traditionally over historical financial statements and the services which are provided by assurances should define the baselines accurately. The practitioner needs to consider engagement materiality. The determination of value can only be carried out if the entities are quantitatively measured, comments the AICPA over the hearing about the same subject.
The practitioners and a materiality-working group set up by the AICPA-Assurance Services Executive Committee (ASEC) provide suggestions for the issue as they consider all the plausible extensions. Some of which are:
• Assess how the practitioners can consider materiality while determining and reviewing attestation engagements surrounding the aspects of subject matters that cannot be quantitatively measured, and
• Develop a non-authoritative and a reference committee to assist practitioners while making professional judgments in concern to materiality in such examination and review engagements.
The conventional systems until now address materiality challenges to provide relevant instances as examples for many commonly recurring events, and extracting the solutions from the previous case. Some examples are System and Organization Controls (SOC) examinations, reviewing of sustainability information, and verification of compliance with contractual requirements. Moving forward, AI(Artificial intelligence) and ML(Machine Learning) algorithms will digitally transform the systems to determine the most suitable option, but the technology is not yet commercially viable.