Lecture4 - Page 1 of 4 Week 4: Materiality, Risk, and...

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Week 4: Materiality, Risk, and Internal Control - Lecture Materiality, Risk, and Internal Control Introduction | New Audit Committee Rules | Materiality | Internal Control | Practice Exercise The Sarbanes Oxley Act mandated many new changes to the field of auditing public companies. The requirement for a specific form of audit committee was one new change. With that change also came mandates for specific reporting by the auditors that affects how the auditor establishes materiality and risk standards and assessment of the client's internal controls. We were first introduced to the concept of audit committees in Chapter 4 of our electronic readings. The audit committee for a public company plays a significant role in the audit process. As we learned from the prior weeks, auditors have special reporting concerns with the audit committee. When we are planning our audit, we must consider the materiality of the financial information. Materiality means that if the accounting information is misstated or omitted, it would probably change or influence the judgment of a reasonable person, which could possibly lead to financial losses for the users of the financial statements. Since there is little guidance provided to auditors in the area of materiality, we must use our professional judgment in determining what financial areas are material and what financial areas are not. So, when we plan our audit, we need to use our professional judgment about materiality, and we need to consider: z Acceptable audit risk Print This Page Introduction New Audit Committee Rules Video For a more expansive perspective of the audit committee, view the video clip hosted by Alvin Arens. New Audit Committee Rules, Due Diligence, and Documentation (4:42, 2.8MB) Transcript Materiality Page 1 of 4 8/23/2011 http://vizedhtmlcontent.next.ecollege.com/(NEXT(ed3d138cfc))/Main/CourseMode/Vized. ..
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z Tolerable misstatement z Inherent risk z Risk of fraud z Control risk z Planned detection risk
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This note was uploaded on 08/27/2011 for the course AC555 AC555 taught by Professor Tarbet during the Spring '10 term at Keller Graduate School of Management.

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Lecture4 - Page 1 of 4 Week 4: Materiality, Risk, and...

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