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    How does an auditor determine what is considered material?

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    You mentioned that "while a simple mathematical transposition that is material to the financial statements should be uncovered by an auditor more easily, the same cannot be said for fraud." How does an auditor determine what will be considered material to the financial statements? How would the materiality of a fraud impact the auditor's responsibility for reporting the illegal act?

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    At your request, the Apollo Shoes case is attached.

    How does an auditor determine what will be considered material to the financial statements?

    Usually the threshold for materiality is based on the size of total assets or total revenue, depending on which is larger. The AICPA publishes a guideline chart that auditors can use to judge the size of a material item. See attached.

    Materiality is a function of size, seriousness (qualitative judgment) and cumulative effect. Many ...

    Solution Summary

    Your response is 245 plus two references. This is a brief (two paragraph) discussion that gives you only a basic idea of materiality, explaining that both size and the qualitative nature of items impact materiality. Fraud is a special kind of event and so materiality is a bit different for it.

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