Question

1. Define the term “Materiality”.

2. The concept of Materiality is considered to have a “Qualitative” dimension. Explain what is meant by this term, give an example.

3. As the “amount considered material” goes down, the amount of audit work (i.e. evidence) done on an audit: A. Stay the same. B. Goes down. ANSWER ____ C. Goes up.

Answer 1

1. Materiality is a concept of within accounting and auditing related to importance of amount and transaction. For example and auditor prepares audit reports about financial statements as per all material aspects. In other words for all accounting and auditing information should be supported by any material aspects.

2. In terms of conceptual framework, materiality also has qualitative aspect or dimension. It means even if misstatement is not material in dollars or in other denomination terms, it may still material because its nature. For example if disclosure is omitted from the financial statements.

3. As the amount considered material goes down, the amount of audit work goes down as financial data should be supprted by materiality or evidence. Hence if material value or amount goes down then auditor will also consider it such low amount or reduced amount.