This is the manner in which the auditor communicates

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Unformatted text preview: total (aggregated) misstatements of more than about 3 to 5 percent of net income before tax would cause the financial statements to be materially misstated. Suppose the auditor decides that the financial statements of a client will be materially misstated if total misstatements exceed $400,000. The auditor would design audit procedures precise enough to detect misstatements that, either by themselves or in combination with other misstatements, could exceed materiality. When testing is complete for all accounts, the auditor will issue a clean audit opinion if the unadjusted misstatements in all the accounts in total add up to less than overall materiality of $400,000. As we shall see later in this chapter, the wording of the auditor’s standard audit report includes the phrase “the financial statements present fairly in all material respects.” This is the manner in which the auditor communicates the notion of materiality to the users of the auditor’s report. As we will explain in connection with the concept of audit risk, there can be no guarantee that the audi...
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This note was uploaded on 12/08/2012 for the course ACCT 564 at Washington University in St. Louis.

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