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Public vs. Investors Perception on Materiality - Term Paper Example
Finance & Accounting
Pages 8 (2008 words)
Materiality is a term that refers to a considerable usefulnessof an item which highly relies on the perception of the person to the general status of a firm.Data materiality and cost-benefit connection enforce limits on the importance of accounting data…
The main purpose of performing an audit on financial statements is to help the auditor to put forth an instant judgment as to whether the financial statements are duly organized in accordance with the recognized financial reporting systems like the GAAP (Generally Accepted Accounting Principle). The perception of materiality assessment is highly dependent on the expatriate opinion. According to FASB (1975), "material information is that whose omission or misstatement could influence the economic decision of stakeholders to the financial statements. Materiality is dependent on the size of the item or error judged in the particular scenario of its omission or misstatement. Materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic whose information must have if it is to be useful." Public vs. Investors Perception on Materiality The public and the private investors have different perceptions on materiality. The entry of auditor’s materiality is perceived as proprietary data by numerous certified public accounting companies as they are not normally reported to the public (Ryan, 2004). Numerous regulators and scholars have suggested that the auditors must be asked to give a report on materiality entry to the users of the financial statements in their report of audit. ...