Dear Professor,,
First thanks so much for your appreciated help & care regarding our career & future.
Second my question is that i have been in the quiz of chapter 5 asked a MCQ question saying "On which 2 of the following does the determination of materiality depend?
Option 1: The nature of errors (Qualitative Factors).
Option 2: The size of errors (Quantitative Factors).
Option 3: The economic decisions of a user of the Financial Statements.
The system has made the anwser as being "Option 1" & "Option 2". Why not "Option 3"? What is the problem in "Option 3"?
Thanks So Much,,,
Ask the Tutor ACCA AA
Materiality Basis!!
6y ago#1If you look at the definition on page 32 it is not the economic decisions but the influence/effect that an omission or misstatement might have. The auditor can't "measure" economic decisions - every shareholder/member will have their own agenda and their decisions will vary. So the auditor DETERMINES materiality based on what can be benchmarked - $size (the obvious one) and qualitative factors. So, for example, if materiality is $100k but profit is $50k and there is a mistatement of $70k which would turn the profit into a loss - it is this turning profit into a loss which is a qualitative consideration. A more common qualitative factors relates to matters which are required to be disclosed by the financial reporting framework - such as directors' remuneration/loans. It doesn't matter how much these are - they have to be disclosed (accurately).
Sign into reply to this topic.