Improving the methodology for calculating the level of materiality

Subject. The article discusses the methodology for calculating the level of materiality in relation to financial statements. Objectives. The purpose is to develop an improved methodology for calculating the level of materiality, which makes it possible to increase the objectivity and accuracy of assessment. Methods. The study draws on the interval estimation method based on finding the confidence intervals of the desired parameter with a given degree of confidence, using statistical analysis. Results. The paper unveils existing problems and disadvantages of the traditional method of calculating the level of materiality. It offers a methodology for calculating the maximum allowable distortions in financial statements, using the interval method of statistical analysis, which involves finding the arithmetic mean of all reporting items, variance, mean square deviation, and confidence interval of the desired value of materiality level. Conclusions. The main disadvantages of the traditional method of calculating the level of materiality are the subjectivity of assessment, consideration of interests of only priority users of financial statements, and impossibility of objective verification of the materiality level obtained by the auditor. To eliminate the identified shortcomings, we propose using the interval estimation method. Its advantage is the standardization of calculating the maximum values of materiality level, which significantly reduces the level of subjectivity in determining the values of indicators, and takes into account the interests of all users of financial statements.