Determining Materiality And Assessing Risks

2257 WordsNov 30, 201410 Pages
Introduction The information that an auditor gathers as he runs analytical procedures in an entity he is auditing and as he gets better acquainted with the organization must be enough in determining materiality and assessing risks. Materiality is very important especially in helping the auditor determine what kind of audit report to be given. The auditor has to make reference to two key issues as regards what areas the financial audit covered. This helps in highlighting risk and materiality. These issues are: the limitation of the liability of the auditor to the significant information given to him and established by him by way of the materiality parameters he has established given his professional capacity and reasoning and his supplying…show more content…
Materiality - Important Indicator for Auditing and For Issuing Audit Opinions within the Audit Report International Standards on Auditing (ISA) 320 defines materiality as 'the amount or amounts set by the auditor as an error, an inaccuracy or an omission that may lead to annual misstatements, as well as the fairness of the results, of the financial statements and the enterprise 's patrimony. The IASC declares that for information to be material, its omission or misstatement can have an influence on economic or financial decisions based on the financial statements. It depends heavily on item size and or error as determined in certain circumstances of their misstatement or omission. Materiality thus gives the threshold instead of being the primary characteristic that useful information has to posses. Financial Accounting Standards Board (FASB) puts it that materiality represents the magnitude of a misstatement or omission of information in a financial statement which a reasonable individual making a decision based on the financial statements would be influenced by. Various reference points can be used in determining materiality e.g. turnover, net result and equity capital (Joldos, et. al. 2010). The elements are referred to as benchmarks. They are the pivots where materiality is determined against either in relative or absolute values. The elements might have two effects: On the exercise outcome: the benchmark used is the
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