MaterialityandRisk(英文版)(ppt66页)课件.pptVIP

Materiality and Risk Chapter 9 Auditing Definition Auditing reduces information risk to a socially acceptable level. To accomplish this, Set materiality (yardstick) Manage risks. Materiality Materiality Information is material when it is likely to influence the economic decisions of financial statement users. Planning materiality (preliminary judgment) is the largest amount of uncorrected dollar misstatement that could exist in published financial statements and still fairly present financial statements in conformity with GAAP. Tolerable misstatement is the amount an account can be off and still be considered fairly stated. Steps in ApplyingMateriality Steps in ApplyingMateriality Auditor’s use materiality to: Plan the audit, directing attention, determining the nature, timing and extent of procedures to be performed. Evaluate the evidence, something to measure against Guide for decisions about audit report Planning Materiality is determined prior to evidence gathering Determining What’s Material Not required to define materiality as a specific dollar amount. Rule of thumb for materiality is under 5% is not material where over 10% would be material. Auditor’s judgment determines materiality Factors that affect auditor’s judgement on materiality Absolute size - half a million Relative size - in relation to F/S such as 5% of net income. Qualitative aspects (nature) - management fraud v.s. employee fraud Circumstances - what will F/S be used for, how widely published Uncertainty - lower materiality level because of risk of being wrong. Cumulative error - errors may accumulate into a material error Preliminary Assessment of Materiality Helps the auditor avoid surprises such as: Not auditing enough - litigation Auditing too much - costly Fine tunes the audit for effectiveness and efficiency. Assigning Materiality to Accounts Top Down, define total materiality and divide amongst the accounts Bottoms-up, assign materiality to each account and add the amounts to get t