Aspects of Materiality A Continuing Education Report...

Introduction The concept of materiality provides a topic for continuing educational discussion that many firms across the country find essential to the development of their audit staff. Measuring and using materiality to obtain desired results during an audit becomes the responsibility of the staff member of a CPA firm. Partners and managers of a firm typically allow the staff member to use his/her judgment when applying this concept during the fieldwork of an audit. The overall success of an audit relies at least in part on the materiality concept; therefore, staff members’ continuing education on the concept becomes important and necessary. This report will define the term materiality, determine how to measure materiality, and†¦show more content†¦The article discusses that in 1976 the U.S. Supreme Court ruled in one case that omitted financial statement information altering a reasonable investor’s decision proves the material nature of the information. The article c ontinues by describing that lower courts earlier ruled that all financial information whether material or not must have full disclosure in a company’s financial statements. The rejection of the lower courts’ ruling by the U.S. Supreme Court gives the investor the ability to focus on the aspects of the financial statements that are most important by allowing the elimination of minute details (Sauer 2007, 317-357). In essence, this ruling allows for the elimination of financial information below the determined materiality threshold unless otherwise required by the ruling of a regulatory body. Measuring Materiality The FASB provides guidance for measuring materiality in an audit. Materiality incorporates professional judgment in practice; however, factual information and the consideration of the needs of the users of financial statements provide a guideline for measurement. 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