First semester essay Example | Topics and Well Written Essays - 2000 words

First semester - Essay Example In other words, whether the reports are prepared in conformity to all the material respects or not. The information is considered material if it has significant impact on the decision making process. If the omission of the information from the financial report can influence economic decision then the information is believed to be material (Williams, 2002). Materiality in auditing is the key concept to understand and evaluate for all the auditors. The job of auditors, whether internal or external, is to identify the materiality while making the audit report of the company. Materiality can be determined using qualitative aspects of the business. The qualitative aspect refers to the significance of a particular transaction which may not look big in size but may have importance because of the nature of the transaction (Zadek & Merme, 2003). There are various qualitative factors that are approached by the auditors to make realistic and authentic decisions. Some of the factors are (1) Likelihood of earning management, (2) Misstatement of share price, (3) Misstatement on projected earnings, (4) Likelihood of financial statement fraud, (5) Ineffective audit control culture, (6) Litigation risk, (7) Fraud detection or its symptoms etc. (Zabihollah & Riley, 2009) The nature of transaction can also be explained in terms of the disclosure regarding the financial transaction, which may not be significant in terms of size but lack of proper disclosure may have significant impact on the presentation of the business structure (Gupta, 2004). Now the question arises, how much the concept of materiality is important in audit process? The answer is explained using the literature review on materiality. The increase in requirement of information in more civilized financial market requires that more stringent audit process must be conducted to identify the facts on which the quality of the business process can be judged (Puncel, 2007). Therefore,