6-2 what is materiality

The message is , folks, that it’s a lot easier to sweat over doing a tough audit right than it is to justify your judgment and decisions after it’s too late. And good luck if you think that a harmed investor will ever see things form your point of view.

The auditor’s responsibility section in an audit report includes two important phrases that are directly related to materiality and risk.

We conducted our audits in accordance with auditing standards generally accepted in the united states of America. Those standard require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

 The phrase obtain reasonable assurance is intended to inform users that auditors do not guarantee or ensure the fair presentation of the financial statements. Some risk that the financial statements are not fairly stated exists, even when the opinion is unqualified.

The phrase free of material misstatement is intended to inform users that the auditor’s responsibility is limited to material financial information. Materiality is important because it is impractical for auditors to provide assurances on immaterial amounts

The phrase free of material misstatement is intended to inform users that the auditor’s responsibility is limited to material financial information. Materiality is important because it is impractical for auditors to provide assurances on immaterial amounts

Materiality and risk are fundamental to planning the audit and designing an audit approach. In this chapter, we will show how these concepts fit into the planning phase of the audit. Note that the topic of this chapter is closely related to earlier discussions of auditor’s responsibilities, transaction cycles, and audit objectives and planning the audit.

In this chapter, we apply both materiality and risk to the concepts studied in chapter 6, we introduce the fifth step in planning the audit, which builds on the first four steps that were covered in chapter 8. When auditor decide materiality and assess risks, they use a considerable amount of the information acquired and documented during the first four parts for audit planning.