Materiality in Auditing Essay Example | Topics and Well Written Essays - 2000 words - 2

Materiality in Auditing - Essay Example As per IASB, the term ‘materiality’ refers to the information that are is important if their its exclusion or inaccurate presentation could shape the economic decision of the users of the financial statement of a business. The Materiality rests upon the magnitude of the evaluated element or error in some scenario of the auditor’s omission or inaccurate presentation. The Materiality depicts the significance of an exclusion or of an incorrect presentation of an accountancy data or information which will impact the decision of a user of such accountancy information. As per ISA (UK&I) 320 , materiality in planning and carrying over out an audit means that the auditor employs the notion of materiality in planning and carrying over out the audit to identify material misstatements. Moreover, at the final  end of the auditing, the auditor will decide whether the unrectified misstatements recognised are either in aggregate or individually material to the financial statements or not. Thus, in deciding the materiality, auditor has to exercise his judgment. An omission or misstatement can be evaluated to be material or immaterial by virtue of their its nature or size or a mixture of both (FRC 2013:7). The auditor is anticipated to design and carry out an audit that offers a reasonable promise that materials’ misstatements will be exposed. Both materiality and audit risk are interconnected in that audit risk is explained in terms of materiality. If there is a material misstatement present in the financial statement even after the audit has been executed , in such case auditor will be held responsile for not highlighting the materiality (Rittenberg, Johnstone & Gramming 2011:135). The notion of materiality offers flexibility to financial reporting, and this can result in abuse. Corporations may record â€Å"small† errors