Materiality in Auditing Essay Example | Topics and Well Written Essays - 2000 words - 12

Materiality in Auditing - Essay Example In the process of audit planning, the auditor takes the decision as to the level of materiality they will use, accounting for the entirety of financial statements that will be audited. This judgment is mainly done on the basis of the nature, size, and specific circumstances of omissions or misstatements that could influence the financial report’s user. Moreover, this judgment is also influenced by public expectations, regulatory requirements, and legislative requirements (Vaujany & Mitev, 2013: p32). This paper seeks to discuss the importance of materiality in the auditing context, as well as to assess the secrecy of materiality levels used by auditors. According to Porter et al (2014: p73), the term material is critically essential in the context of auditing. Materiality definitions in financial reporting are especially critical to auditors, financial statement preparers, and financial statement users. While only two of these stakeholders may be involved in making decisions on materiality, in this case the auditors and the preparers, the definition of materiality in auditing is oriented more towards the user. The user’s judgment of decisions on materiality is central to defining materiality, rather than the judgment of the financial statement preparer. Budescu et al (2012: p24) define materiality as one of the fundamental and essential auditing concept, noting that the Auditing and Assurance Standard-13 on audit materiality establishes the materiality concept’s standards, as well as how it relates with audit risk. A fair and true financial statement and how it is presented will depend on the materiality concept, amon g other things. Keune & Johnstone (2012: p1650) note the relative nature of the materiality concept, arguing that what is material in a specific situation may be immaterial in another circumstance and that consideration and judgment on materiality is a matter for the auditor’s experience and professional judgment. Thus, the

Financial Statement Analysis Coursework Example | Topics and Well Written Essays - 750 words

Financial Statement Analysis - Coursework Example It can also be defined as a strategy by which a firm buys its own shares, with an aim of reducing outstanding shares (Baker, 2009 p. 268). Firms issue stock repurchases due to the following reasons. It leads to increase in earnings per share, earning per share can be defined as the proportion of firms profits allocated to every outstanding share. The reasoning behind it is that when the number of outstanding shares decreases the earnings per share increase. When a company earnings increase it builds a positive image of the firm and financial stability of the is also boosted. It elevates the value of remaining ordinary shares, the value of the remaining shares increases. When a company repurchases shares, the remaining shares gain value as dilution decreases. This makes a company to boost its financial stability, in a means that does not affect the company adversely, because there is no additional debt (Baker, 2009 p. 174). It’s also a method to earn more returns, the management of the company may decide to buy their own company shares when they are undervalued, and sell them when their prices increases in order to reflect the true value of the company. This helps a firm from takeovers or be acquired by other firms. It leads to investing the excess cash the company has on its own stock. The management makes use of the companys excess cash by investing in their own stock. This is because the management believes that the cash invested in their own company is less risky and have higher return compared to other investments. It leads to lower taxes, when a firm uses excess cash to buy back stock instead of paying dividends, the shareholders are in a position to defer capital gains and taxes especially when there is an increase in stock prices. Dividends declared to shareholders are regarded as income and therefore taxable as ordinary income. Therefore, shareholders are advantaged. Earnings per share can be defined as a measure of