Question

In: Accounting

How the constructs of “materiality” influence the auditors’ professional judgment on misstatements ?

How the constructs of “materiality” influence the auditors’ professional judgment on misstatements ?

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Expert Solution

Materiality influence the auditors’ professional judgment on misstatements

1. Materiality is concept in auditing and accounting. It can influence the decisions of the users of financial statements. It is affected by size and nature of misstatement.

2. It speaks about the importance of particular amount, transaction, account balances etc.

3. The concept of materiality varies from auditors to auditors. What may be material to one auditor may not be material to another, it involves the professional judgement of the auditor along with his professional experience.

4. There is no particular threshold for determining materiality it varies with situations. What may be material one situation may not be material in another situation.

5. While planning the audit itself auditor should determine the materiality in the work that he is going to perform

6. In order to decide the materiality in the current situation auditor should have a through understanding of the entity and its environments and the type of internal controls that exist in the entity.

7. The concept of materiality can be relaxed is there exist a strong internal control and if the entity is carrying periodic checks for the same.

8. In order to decide the level of materiality the efficiency and effectiveness of the internal controls need to analyzed.

9. Determination materiality can be at two levels (a)At financial statement level (b) At assertion level (Performance Materiality)

10. Materiality bench mark can be made at elements of financial statement, nature of entity, ownership structure     and users of financial statement.

11. Revision of materiality should be made as and when the audit progress based on the information obtained during the audit.

12. Determine whether performance materiality need to revised based on time, extent and nature of audit procedures (TEN)


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