acc562 week 10 discussion 1

acc562 week 10 discussion 1 - This change has significantly...

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What makes materiality decisions complex and judgmental? Materiality is a term that is hard to quantify, and must be determined for each individual situation. There are no approaches to be provided a clear boundary around materiality but materiality depends on a judgment or what a “reasonable person” would consider material. Generally, materiality decisions are purely based on professional judgment and skepticism. Deciding what is materiality is a challenge to an auditor. However, there many factors contribute making materiality decisions complex and judgmental. First, complexity in the business environment has increased. The business environment is certainly far more complex today than it was in the past. As complexity in the business environment has increased, the level of complexity in financial reporting has also grown. The greater complexity in financial reporting creates challenges in deciding materiality. Second, complexity in the legal/regulatory view of financial statement materiality has increased.
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Unformatted text preview: This change has significantly lowered the threshold at which corrective action in the form of restatement is required. Third, decisions on materiality are made and supported by discussions and decisions made on (a) key organizational values, policies, strategies, targets, and goals, (b) the interests and expectations of stakeholders uncovered in stakeholder relations, and (c) identification of significant risks and opportunities. Determination of materiality should not be divorced from these activities. Finally, an organization's eco-efficiency measurements and related internal performance indicators will also provide an important basis for measurements included in sustainability reports. References
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This note was uploaded on 02/01/2012 for the course ACCT ACC562 taught by Professor Williamguy during the Fall '10 term at Strayer.

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