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    How do you define materiality as a CPA?

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    In assessing errors, a CPA must consider its materiality, since immaterial errors do not necessarily require correction. How do you define materiality as a CPA in evaluation of errors? What are some considerations?

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    The materiality principle considers the significance of an error that could cause distortion in the fair presentation of financial statements and could affect a decision of a reasonable individual. If the omission of a correction would not affect decisions, then the item is likely not material and no correction need be made.

    Of course, the decision about whether something is material or not has been beat to death over the years, but for all the quantitative approaches to assessing materiality, educated CPA judgment is usually the deciding factor.

    If the error correction is not made in the current year, it is possible that the result would produce two or more years with errors. For example, if depreciation was calculated using either the wrong capitalized amount of the wrong ...

    Solution Summary

    the 478 word cited solution provides a good explanation of the concepts of materiality as applied in the business world including examples.