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Management Assertions & Quantifying Materiality

What are management assertions? How do they affect the financial statements? How does the auditor formulate audit objectives based on management assertions?

Can materiality be quantified? If so, how? What are the three steps of applying materiality to an audit? What factors should be considered when allocating materiality to an account balance?

Select a current event article related to small business, tax or accounting. Provide the link to the article and then summarize your thoughts on the article. Post one discussion question relating to your article for the class to discuss.

Solution Preview

- What are management assertions? How do they affect the financial statements? How does the auditor formulate audit objectives based on management assertions?

During an audit of financials, management assertions also known as financial statement assertions, is/are the set(s) of data the one prepping the financial statements /management is postulating to some other body. What they do to financial statements is verify the numbers or perhaps change them. The Auditor can during this process; review policies, methodologies, performances, job rotating, procedures and again based on management's goal(s), it can rely on what management feels the goal(s) are/is and use his or her skills to check and inform them about the goal/goals. In other words designed based on what they want and how he or she know how to check this, based on skills and techniques.

- Can materiality be quantified?

Yes. By several common means which include some of the following (among others), checking the percentage of pre-tax income or net income using an average over three years, verifying the percent of total assets, and checking the percent of the gross profits or proceeds. What are the three steps of ...

Solution Summary

The article explains management assertions in terms of audit objectives as well as how to quantify materiality. It also summarizes a small business article. 757 words.

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