The correct answer is Materiality, because materiality involves evaluating the significance and potential impact of issues identified during an audit, including financial, legal, contractual, and reputational consequences. In auditing, materiality helps determine which matters are important enough to influence audit conclusions or stakeholder decisions.
When defining materiality, auditors consider factors such as the cost of nonconformities, potential regulatory penalties, contractual breaches, and the broader business impact of noncompliance. For an ISO/IEC 27001 audit, this may include assessing whether failures in information security controls could lead to fines under data protection laws, loss of customer trust, or breach of service-level agreements. These considerations help auditors decide where to focus audit effort and how to prioritize findings.
Option B is incorrect because audit risk relates to the risk that auditors may reach incorrect conclusions due to inherent, control, or detection risks. While costs and penalties may influence risk assessment, they are not evaluated specifically when defining audit risk. Option C is incorrect because reasonable assurance refers to the level of confidence an audit can provide, not the evaluation of financial or legal impacts.
ISO 19011 supports the use of materiality concepts to ensure audits focus on issues that matter most to the organization and interested parties. Therefore, evaluating costs and penalties is directly linked to defining materiality.
