Assessing Materiality and Risk Simulation - Case Study Example

Auditing and Materialism Auditing and Materialism Financial audits add credibility of an organizations’ management to thefirm’s stakeholders. Any omission of misrepresentation of account information in the financial statement is a sign of incompetence of the management. Accounts that contain capital assets have to be fully audited to determine assets that have to be depreciated. Auditors must audit accounts that involve stock transaction and treasury stock in order to determine the organizations inventory.

Investors utilize financial reports when making their investment decisions. Full auditing of accounts provides accurate information about the company that attracts investors. Investors are attracted to companies that have large profits and high dividends repayment. The company management utilizes audit information when making company strategies. Information about profits, losses, and market share help company managers make critical decisions regarding business processes (Boynton & Johnson, 2006).

Materiality is the measure of the quantity and quality of item misstatement in a financial report. An audit statement enables the auditor to determine whether auditing has been carried out according to the financial reporting framework. Company items that have no effect on the judgment of the user of the financial statement can be omitted. Important items that affect the users’ judgment require auditor attention. The auditor must allocate materiality to sampled items in order to ensure some accounts are not ignored or under weighted.

During auditing, only accounts that matter are audited, and materiality is attached after sampling. Every company has established materiality standards aimed at identifying misstatements in audit reports. Sampled accounts are checked against the set standards to determine the quantity of misstatement (Boynton & Johnson, 2006). ReferencesBoynton, W. C., & Johnson, R. N. (2006). Modern auditing: Assurance services and the integrity of financial reporting. (8th ed.). Hoboken, NJ: John Wiley & Sons.