Once a company conducts its internal audits, an outside auditor is often engaged to review and determine, with reasonable assurance, if the company has complied with the relevant standards and appropriate requirements. At the start of every audit, auditors need to begin the engagement planning process as well as properly plan the audit, evaluate the integrity of management, and determine materiality. Discuss and evaluate the concept of materiality in the engagement planning process. Discuss how materiality translates to a company's financial-statement assertions and account balance assertions.
Concept of Materiality
Materiality is a concept or convention in auditing and accounting relating to the importance of an account, transaction and discrepancy. The concept of materiality recognizes that some matters are important for fair presentation of financial statements with standard accounting principles (Beasley & Carcello, 2008). The main objective of an audit of financial statements is to enable the auditor to convey an opinion regarding financial statements whether they follow identified financial reporting framework or not. The representation in the auditor's standard report regarding fair presentation indicates the auditor's belief that the financial statements taken as a whole are not materially misstated.
Evaluation of Materiality
In order to obtain reasonable assurance about financial statements and whether they are free from material misstatement, an audit procedure is important. In that, the auditor develops a plan and performs auditing to detect misstatements individually and combined with other misstatements. It would result in material misstatement of the financial statements (Crawford & Loyd, 2008). So, it is important to alert while planning and performing audit procedures for misstatements ...
The expert examines planning and performing an audit for internal audits. How materiality translates to a company's financial-statement assertion and account balance assertions are determined.