Tablet Pharmaceuticals Limited, a listed company engaged in the manufacture of pharmaceutical products, appointed P & Co., Chartered…

The concept of materiality is applied by the auditor both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor's report. SA 320 deals with auditor's responsibility to apply the concept of materiality in planning and performing an audit of financial statements. Financial reporting frameworks often discuss the concept of materiality in the context of the preparation and presentation of financial statements. Although financial reporting frameworks may discuss materiality in different terms, they generally explain that: Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements; Judgments about materiality are made in the light of surrounding circumstances, and are affected by the size or nature of a misstatement, or a combination of both; and Judgments about matters that are material to users of the financial statements are based on a consideration of the common financial information needs of users as a group. The possible effect of misstatements on specific individual users, whose needs may vary widely, is not considered. From the facts of the case, it can be concluded that the Finance Director's views are not correct. Misstatements may be material individually or when considered in the aggregate if they could reasonably influence the economic decisions of users of the financial statements. Further, judgments about materiality are based on the common financial information needs of users as a group and not on the needs of any specific individual user. Therefore, the Engagement Partner's approach is in accordance with the requirements of SA 320.