Inherent Risk

Introduction to the principles and concepts of the audit as an attestation service offered by the accounting profession. Primary emphasis is placed on Generally Accepted Auditing Standards, the role of the CPA/auditor in evidence collection, analytical review procedures and reporting, the CPA/auditor's ethical and legal responsibilities, the role of the Securities and Exchange Commission as well as other constituencies. Audit testing, including statistical sampling, internal control issues, and audit programs are discussed. --

Description:

Materiality is one of the basic and major concepts of auditing. Yet, the materiality concept remains as an ambiguous concept. A myriad of research has been shown that auditors do not reach a consensus as to the meaning of "material." Materiality is an assessment made by an auditor of the amount of tolerable misstatement of a client's financial statements in relationship to the amount of assessed risk assumed and the perceived users of the report. Materiality is considered throughout all three stages of an audit; planning, field work, and final analytical procedures. The materiality assessment determines the extent of audit procedures performed by the CPA. Financial statements that have been determined to be materially misstated by a CPA must either be adjusted, or the CPA must issue a qualified or adverse opinion.

Information is material if its omission or misstatement could influence the economic decision of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful.

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