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Materiality in Auditing(Discuss these abstracts in the context of academic research and recent developments in audit regulation and practice) Essay Example

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Materiality in Auditing(Discuss these abstracts in the context of academic research and recent developments in audit regulation and practice)

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In: 1) the design of audit procedures for mechanisms to detect misstatements; the pursuit of the elimination of audit risk; and, the assessment of the risk of material misstatement as the basis for the audit procedures (Bragg, pp. These variables underscore how materiality forms part of the foundation of sound audit procedures, one that is capable of addressing errors and risks. The defined object of audit underscores this as auditors are expected “to carry out procedures designed to obtain sufficient appropriate audit evidence… [in order] to determine with reasonable confidence whether the financial statements are free of material misstatement” (Auditing Practices Board 1995, par. A good analogy that could map out the relationship is that materiality is inversely related to risk: all other things being equal, as materiality goes up, audit risk goes down and vice versa (Kearns 2007, p.The overall auditing framework that is achieved with a focus on materiality allows the auditor to identify, evaluate and address risks in the financial reporting as well as in determining whether additional audit is necessary. A review of literature on materiality and contemporary audit reveals the permeation of materiality as auditing practice and its role in efficacy of financial reporting. For instance, Brennan and Gray (2005, pp.1) outlined how it became imperative through the years such as after the 1990s period, when the US Securities and Exchange Commission (SEC) Chairman Arthur Levitt cited the need to reform “accounting hocus-pocus” and the misapplications of accounting principles. Materiality is critical when evaluating risks and uncertainties in the financial information. These are inevitable in preparing financial statements but materiality is able to inform the judgment of auditors in assessing whether the information is true and fair (Brennan & Gray, p. Researchers such as Langevoort (2002) and Huang (2005) demonstrated how financial reporting using materiality is critical for stakeholders such as the investors because the decisions made based on financial documents rife with errors will inevitably impact organizational performance because of inappropriate economic decisions.An important aspect to the issue of risk in materiality-audit relationship is abuse. Materiality is largely relegated to the judgment of the auditor since the goal is to achieve a certain degree of flexibility when it comes to reporting financial data. Organizations

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