Materiality And Its Impact On The Field Of Auditing

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Introduction With respect to the field of auditing, materiality is a critically important concept addressing the significance of discrepancies, amounts, and transactions. Specific materiality guidelines are required in accounting practices to avoid judgmental (legal) decisions. Materiality is applied for most, if not all, economic decisions, and the topic of materiality is not a new issue. Disclosures in re financial statements have been emphasized by courts in the United Kingdom since the 1800 's, whereas materiality initially rose to importance in the United States following 1933 's Security act. The significance of the materiality concept and its implications are pertinent to business decisions, as well as for analysis and preparation…show more content…
Definition of Materiality The materiality concept has been addressed by The International Accounting Standards Committee (IASC), as well as by accounting bodies in the United States such as the American Institute of Certified Public Accountants (AICPA), the Securities and Exchange Commission (SEC), the Financial Accounting Standard Board (FASB), and the General Accounting Office (GAO). Materiality was defined by FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information (Para. 132, 1980) as follows: “The magnitude of an omission or mis-statement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or mis-statement”(Juma 'h, 2009).
Classification of materiality What a company releases or discloses on the 'face ' of its financial statements is a decision involving limitations as to the amount or extent of information to be disclosed; this also applies for notes. In the first place, a comprehensive inclusion of all economic events affecting a particular business would result in an enormous glut of unnecessary material that is likely to present a false impression of the company to the stakeholders reading the financial statements. Simultaneously, however, the professional accountant is aware that choice of the
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