Introduction
The concept of materiality provides a topic for continuing educational discussion that many firms across the country find essential to the development of their audit staff. Measuring and using materiality to obtain desired results during an audit becomes the responsibility of the staff member of a CPA firm. Partners and managers of a firm typically allow the staff member to use his/her judgment when applying this concept during the fieldwork of an audit. The overall success of an audit relies at least in part on the materiality concept; therefore, staff members’ continuing education on the concept becomes important and necessary. This report will define the term materiality, determine how to measure materiality, and explain the importance of the concept to the field of auditing.
Defining Materiality
The utilization of the concept of materiality in auditing dates many years. Varying definitions of materiality during the preliminary stages of utilization prove that auditors recognized a need for this concept but did not have a standard for defining the term. The recognition by the Financial Accounting Standards Board (FASB) of the need for this concept prompted a decision to determine a universally recognized definition of materiality. In the book, Auditing Concepts for a Changing Environment, the FASB defines materiality as, “the magnitude of an omission or misstatement of accounting information that, in 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 misstatement” (Rittenberg and Schwieger 2001, 92). In essence, the concept helps auditors determine the financial information that...
... middle of paper ...
...ff must understand the definition of the concept, determine the process for measuring materiality, and have a concrete understand of the importance of the concept when auditing a company’s financial statements.
Works Cited
Rittenberg, Larry E., and Bradley J. Schwieger. Auditing Concepts for a Changing
Environment, 3rd ed. Harcourt College Publishers, 2001.
Sauer, Richard C., “The Erosion of the Materiality Standard in the Enforcement of the Federal
Securities Laws.” Business Lawyer 62, no. 2 (February 2007): 317-357.
Gordeeva, Mayya, “Materiality in Accounting.” Economics and Management 16, 2011: 41-47.
Messier, William F., Jr., Nonna Martinov-Bennie and Aasmund Eilifsen. “A Review and
Integration of Empirical Research on Materiality: Two Decades Later.” Auditing: A
Journal of Practice and Theory 24, no. 2 (November 2005): 153-187.
Individual Article Review Lily Cobian LAW/421 March 31, 2014 Ramon E. Ortiz-Velez Individual Article Review Introduction My article review is based on Sarbanes-Oxley and audit failure, a critical examination why the Sarbanes-Oxley Act of 2002 was established and why it is not a guarantee to prevent failure of audits. Sarbanes-Oxley Act talks about scandals of Enron which occurred in 2001 and even more appalling the company’s auditor, Arthur Anderson, found guilty of shredding company documents after finding out Enron Company was going to be audited. The exorbitant amounts of money auditors get paid to hide audit discrepancies was also beyond belief. The article went on to explain many companies hire relatives or friends to do their audits, resulting in fraud, money embezzlement, corruption and even the demise of companies. Resulting in the public losing faith in the accounting profession, the Sarbanes-Oxley Act passed in 2002 by congress was designed to restrict what company owners and auditors can and cannot do. From what I gathered in the article, ever since the implementation of the Sarbanes- Oxley Act there has been somewhat of an improvement but questions are still being asked as to why there are still issues that are not being targeted in hopes of preventing more audit failures. The article also talked about four common causes of audit failure: unintentional auditor mistakes, fraud, fatigue and auditor client relationships. The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct clearly states an independent auditor because it produces a credible audit, however, when there is conflict of interest, the relation of a former employer, or a relative or even the fear of getting fire...
In the year 2002, Adelphia Communications Corporation faced a massive accounting scandal that led to company’s bankruptcy and later reorganization. This paper will attempt to identify, analyze and evaluate the consequences of misrepresentation of financial accounts on a company, industry and economic level. Moreover, it will attempt to examine factors influencing the corporate failure from an auditor’s point of view, and consider the measures that auditor could have taken in order to enable quality and completes of information communicated to external users.
Rittenberg, Larry, Bradley Schwieger, and Karla Johnstone. Auditing. 6th ed. Mason: Thomas South-Western, 2005. 10-40.
In his novel, Brave New World, Aldous Huxley provides stark warnings for contemporary American society by using the futuristic but relatable setting of the “World State”. When reading such dystopia novels as Brave New World, readers must consider the implications of the author’s warnings and how they are relevant to the world we live in. One such warning that deeply relates to contemporary American society is that of the dangers of consumerism and the materialistic view that results from it. As in the “World State”, we live in a culture where economic stability is favored over the preservation of resources. Moreover, people seem to feel that spending and buying is a way to increase or maintain social status. While climbing up the social hierarchy
It has been noticed that during the accounting scandal of WorldCom, journal entries in the amount of $150 million and $771 million, respectively, were made by two General Accounting employees – Dan Renfroe and Angela Walter—without detailed support. Although, this was not out of the ordinary at WorldCom, this is not a correct accounting practice as it is against the basic principles of bookkeeping and accounting. This is because detailed support in the form of documentation is the key element in providing support to a journal entry and explains the reason or purpose why the journal entry was created in the first place. Such support is very important and relevant from the point of view of the persons reviewing the journal entry and those intending to approve the journal entry. Most importantly, it is extremely relevant and essential from the point of view of external auditors of the company or business. Thus, such support or related documentation enables the reviewer or approver to assess and acknowledge the completeness, reasonableness, accuracy, and appropriateness of the journal entry.
Thus, history is better understood through the struggle of different classes than in terms of race.
Throughout the semester we have covered many different topics during our study of contemporary American culture. We studied topics relating to our everyday lives such as, relationships, life habits, work, and school. The various readings, films, and discussions during class have helped me reflect upon my life. I would like to elaborate and focus on the aspects of this class that directly influence the way I see the world today. Before I took this course my mental image of materialism, happiness, and love were entirely different. I have been exposed to a different perception of our world today that I would have never experienced if I had not taken this course. Our course material helped me analyze how materialism affects me, and it helped me develop a more clear understanding of the meaning of love and happiness.
Have you ever wanted something so bad, but you couldn’t see yourself getting it? Well that has pretty much been my life. When my mother was a child she lived in town, where you couldn’t walk outside of your door without seeing something done illegally. Whether it be the next biggest homicide, or drugs being transported in and out of a house. From then on she knew the life she wanted for her kids and it wasn’t the life she currently lived. My mother had me at the age of sixteen, so until she had a stable income we lived with my grandparents. She then had my brother, which motivated her to move her family toward he outskirts of the city, what we know as the suburbs. She did everything she could in order to provide for my brother and I, while
Material culture is a method that is essential to answering my research question, how did homeownership and the renovation/restoration process create place identity? I define material culture as the material representation of the culture (Culture, 2007; Schlereth, 1982; Glassie, 1999). The definition I use for place identity is how the house is a reflection of a resident’s ideologies (Droseltis & Vignoles, 2010). These two ideas come together in the field of material culture studies. Materials culture studies embody the work of scholars and researchers that examine human behavior through the lens of objects using a variety of approaches. Taking five pieces of scholarship I identify a source each researcher used, and how they used material culture.
Happiness is yearned by all Americans. The standard way of thinking about happiness is that everyone is and obligated to be happy. The world surrounds you with the idea that you are happy, the idea that you can buy your happiness. Society is not always right. Happiness can be achieved by surrounding yourself with people you want to be around, to put your time and focus into something other than yourself, and to not fixate on being happy.
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
The materiality concept is the principle in accounting that distinguish matters that are to be disregarded or are to be disclosed. This is the concept where an organization decides whether the items are large enough to be disclosed. These items are categorized as material items. The concept of materiality is relative in size and importance. Some financial information might be material to one company but might be immaterial to another. This can be seen by observing two different companies-a small company and a large company. A large and material expense to a small company might be small an immaterial to a large company because of their size and revenue. For instance,
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.
Since the 1800’s, anthropologists and archaeologists constantly try to uncover the mystery of the intelligence and skills of our ancestral humans to survive the wonders of the world hundreds of thousands of years before us. Material culture, the physical representation of the current society’s technology and beliefs, is one of the most effective ways to study and investigate these questions. Researchers try to unearth artifacts of previous societies, like their tools, weapons, and art to examine the myths of their intellectual and imaginative level as time progresses. Our ancestors’ imagination and intellect is extremely important because the ability to harness and effectively use it is extremely crucial to the evolution of our society and ultimately, our survival.
No matter auditors work with technology or not, the most important thing in process of auditing is evidence. The basic framework for the auditor understands of evidence and its use to support the auditor's opinion on the financial statement. In reaching an opinion on the financial statements, the evidence gathered from the audit procedure is used to determine the fairness of the financial statements and the type of audit report to be issued. The characters of paper audit evidence are: