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

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

Solutions

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)

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Although materiality is ultimately a matter of professional judgment, two types of criteria are taken into...

Although materiality is ultimately a matter of professional judgment, two types of criteria are taken into consideration when determining materiality thresholds. Provide the two types of criteria

Answer Part a, b,c,d in brief Professional standards outline the auditors consideration of material misstatements due...

Answer Part a, b,c,d in brief Professional standards outline the auditors consideration of material misstatements due to errors and fraud. (a) \%at responsibility does an auditor have to detect material misstatements due to errors and fraud? (b)What two main categories of fraud affect financial reporting? (c)"What types offactors should auditors consider when assessing the likelihood of material misstatements due to fraud?(d)\%ich factors existed dur ing the 1997 through 2000 audits of Xerox that created an environment conducive for fraud?

Integrity & Professional Judgment and how it applies to the Christian Worldview

How are auditors required to document matters related to their consideration of material misstatements due to...

How are auditors required to document matters related to their consideration of material misstatements due to fraud?

what is the role of professional judgment and expertise in improving quality? How can the use...

what is the role of professional judgment and expertise in improving quality? How can the use of judgement and expertise be reconcilied with evidence-based decision making?

Uncorrected Misstatements and Performance Materiality. Aaron Rivers, CPA, is auditing the financial statements of Charger Company,...

Uncorrected Misstatements and Performance Materiality. Aaron Rivers, CPA, is auditing the financial statements of Charger Company, a client for the past five years. During past audits of Charger, Rivers identified some immaterial misstatements (most of which relate to isolated matters and do not have common characteristics). A summary of these misstatements follows. (To illustrate, in 2012, the misstatements would have reduced net income by $13,200 if corrected) Year Effect on Net Income Effect on Assets Effect on Liabilities Effect on...

Misstatements that exceed quantitative materiality thresholds can have large impacts on the judgments of financial statement...

Misstatements that exceed quantitative materiality thresholds can have large impacts on the judgments of financial statement users. However, even quantitatively small misstatements can be material for qualitative reasons. List three qualitative factors that would suggest that a misstatement is material, even if the magnitude of the misstatement falls below the quantitative materiality thresholds of planning materiality and tolerable misstatement.

audit problem Your preliminary judgment about materiality. apply with a company such as tjmaxx (it would...

audit problem Your preliminary judgment about materiality. apply with a company such as tjmaxx (it would relate to the annual report, 10-k, and looking on the income statement)

Materiality Define the concept of materiality. How does one determine what materiality is and how is...

Materiality Define the concept of materiality. How does one determine what materiality is and how is it applied to an audit?

When reviewing the summary of misstatements found in the audit, A. auditors only need to consider...

When reviewing the summary of misstatements found in the audit, A. auditors only need to consider the misstatements that impact the income statement. B. an adjusting journal entry must be made by the auditor for all material misstatements. C. auditors must combine individually immaterial misstatements to evaluate whether the combined amount is material. D. the auditor is not required to consider the impact on the current financial statements of misstatements in the prior year that were not corrected.

Subjects