9. What is “MATERIALITY” in Auditing? Explain how MATERIALITY affects audit reporting decisions in details.
Materiality in auditing broadly means something which can affect the financial statement from the auditors point of view. While auditing if the auditor finds that there is any misstatements or any omissions by the management while preparing the financial statement and this misstatements or omissions can influence the decision of users of financial statement then the auditor can term this as materiality.
Example amount of $50000 will be immaterial for corporation having a net income of $1,110,000 whereas the same amount it will be material for a corporation having a net income of $80,000 .
Example any transaction with any related party at less than arm's length price aur more than arm's length price will be material as the transaction can mislead the whole financial statement because of the interrelation between the corporation. Due to relation between the corporation price charged or price paid whatever be the case can vary as compare with the other corporation.
Example if there is transaction which can hamper the going concern concept of the corporation this can be considered as material by the auditor.
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9. What is “MATERIALITY” in Auditing? Explain how MATERIALITY affects audit reporting decisions in details.
Explain how materiality affects audit reporting decisions.
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