What is materiality principle?

What is materiality principle?

What is the Materiality Principle? The materiality principle states that an accounting standard can be ignored if the net impact of doing so has such a small impact on the financial statements that a user of the statements would not be misled.

How is materiality calculated?

The materiality threshold is defined as a percentage of that base. The most commonly used base in auditing is net income (earnings / profits). Most commonly percentages are in the range of 5 – 10 percent (for example an amount 10% material and 5-10% requires judgment).

How do you calculate tolerable misstatement?

A general range of 50 percent to 75 percent of planning materiality, based on moderate risk at the financial statement level, is commonly used to calculate tolerable misstatement (performance materiality) at the financial statement level.

Why is net income before tax the most common base?

The net income before tax is the most commonly used base by the auditors to determine the judgement about materiality mainly because of the risk associated with the net income before taxes.

Which form of evidence is most reliable?

Physical evidence

What is reliable evidence?

in the law of evidence, the aspect of evidence that the fact-finder feels able to rely upon in coming to a decision. Before the evidence can be relied upon, it must usually also be credible.

Which is the least reliable source of evidence?

A primary source is an original object or document — the raw material or first-hand information. Eye witness accounts are also a primary source, but are less reliable than a document. A primary source is an original object or document — the raw material or first-hand information.

Which of the following types of audit evidence is the most persuasive?

Although the bank statements are in the possession of the client, they originated outside of the client and, relative to the other responses, they are the most persuasive.

What is the most persuasive evidence in auditing cash?

Although the bank statements are in the possession of the client, they originated outside of the client and, relative to the other responses, they are the most persuasive.

Which of the following types of audit evidence is the most reliable?

(1) Information obtained indirectly from outside sources is the most reliable audit evidence.

Which of the following audit evidences obtained would be most reliable?

Auditor’s direct knowledge — Evidence obtained directly by the auditor through physical examination, observation, computation and inspection is more reliable than information obtained indirectly.

What are the 7 audit assertions?

Companies must attest to assertions of existence, completeness, rights and obligations, accuracy and valuation, and presentation and disclosure.