10989 Lecture Notes - Lecture 5: Gross Profit, Magnetic Storage, Accrued Interest
Document Summary
[definition]materiality: information which, if omitted, misstated or not disclosed, has the potential. Quantitative guidelines relate dollar amount of error to financial statements under examination. (aasb 1031- guidelines to determine materiality). N. b. misstatements up to this level is known as tolerable error. Risk that auditor gives wrong opinion due to material misstatement (inverse relationship) If low materiality (high risk)- won"t perform in depth procedures. Qualitative considerations qualitative effect can be considered only as quantitative evidence becomes available: Significance of the misstatement to the particular entity. Effect of misstatement on the financial report as a whole. If control risk = high, detection (audit) risk must be made low therefore use predominately substantive procedure (90% substantive & 10% test of controls) If control risk= low, detection (audit) risk will be high- therefore can use. ________________________ test of controls (10% substantive & 90% test of controls) [definition] substantive procedures: provides evidence to support the amounts recorded in financial statements. (source documents) costly.
