The Qualitative Characteristics of Financial Statements Audit in the Midst of Materiality Constraint
Journal of Global Accounting, Vol. 1, No. 1, April 2005
16 Pages Posted: 10 Apr 2011
Date Written: 2005
Abstract
The financial statement evolve from simplifying, condensing and aggregating transactions of an organisation in a form guided by accounting standards.
The financial statement audit improves the value of the information In a financial statement, making it-more useful to decision makers, The auditor In his work tries to collect sufficient and appropriate evidence to prove that financial statements are true and fair before giving an opinion on these statements, A major risk tor auditors Is that they may give an inappropriate opinion because they have failed to identify business risk and to collect the evidence to reduce the risk of giving such an opinion.
In practice, auditors are greatly influenced by materiality considerations in determining the extent of their work. At what level an auditor sets materiality again comes down to professional judgment It should however be recognized that the materiality level set and the amount of evidence an auditor needs to acquire relate.
Materiality threshold constraint propounds that although items and amount that are of low significance must be accounted for, they do not have to be separately reported if they would not influence reasonable decision The reality is that it is the little things that lead to bigger things, the substance is that the singular act of cover-up disguise the actual transaction and makes the auditor's true and fair view opinion seriously difficult. Primarily, the failure of financial statement to warn investors of the impending collapse of Enron resulted in a landmark loss of funds. The failure of present day audit-style to detect management fraud has the same impact Principle based standard should be set to guide the taking of good professional judgment to such extent that materiality level set an accounting information do not distort little details with large implication
Keywords: Financial Statements, Audit, Materiality Constraint
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