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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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