These items are not critical to the buyers decision

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Unformatted text preview: d has provided the following definition of materiality: Materiality is the magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.7 The focus of this definition is on the users of the financial statements. In planning the engagement, the auditor assesses the magnitude of a misstatement that may affect the users’ decisions. This assessment helps the auditor determine the nature, timing, and extent of audit procedures. Relating the concept of materiality to our house inspector analogy is rather intuitive—a house inspector will not validate the remaining life on lightbulbs or thoroughly test every cabinet hinge. These items are not critical to the buyer’s decision. While other qualitative factors must be considered in determining materiality, a common rule of thumb is that...
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