Materiality in Auditing Essay Example | Topics and Well Written Essays - 2000 words - 12

Materiality in Auditing - Essay Example In the process of audit planning, the auditor takes the decision as to the level of materiality they will use, accounting for the entirety of financial statements that will be audited. This judgment is mainly done on the basis of the nature, size, and specific circumstances of omissions or misstatements that could influence the financial report’s user. Moreover, this judgment is also influenced by public expectations, regulatory requirements, and legislative requirements (Vaujany & Mitev, 2013: p32). This paper seeks to discuss the importance of materiality in the auditing context, as well as to assess the secrecy of materiality levels used by auditors. According to Porter et al (2014: p73), the term material is critically essential in the context of auditing. Materiality definitions in financial reporting are especially critical to auditors, financial statement preparers, and financial statement users. While only two of these stakeholders may be involved in making decisions on materiality, in this case the auditors and the preparers, the definition of materiality in auditing is oriented more towards the user. The user’s judgment of decisions on materiality is central to defining materiality, rather than the judgment of the financial statement preparer. Budescu et al (2012: p24) define materiality as one of the fundamental and essential auditing concept, noting that the Auditing and Assurance Standard-13 on audit materiality establishes the materiality concept’s standards, as well as how it relates with audit risk. A fair and true financial statement and how it is presented will depend on the materiality concept, amon g other things. Keune & Johnstone (2012: p1650) note the relative nature of the materiality concept, arguing that what is material in a specific situation may be immaterial in another circumstance and that consideration and judgment on materiality is a matter for the auditor’s experience and professional judgment. Thus, the