Public vs. Investors Perception on Materiality Term Paper

Public vs. Investors Perception on Materiality - Term Paper Example The main purpose of performing an audit on financial statements is to help the auditor to put forth an instant judgment as to whether the financial statements are duly organized in accordance with the recognized financial reporting systems like the GAAP (Generally Accepted Accounting Principle). The perception of materiality assessment is highly dependent on the expatriate opinion. According to FASB (1975), "material information is that whose omission or misstatement could influence the economic decision of stakeholders to the financial statements. Materiality is dependent on the size of the item or error judged in the particular scenario of its omission or misstatement. Materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic whose information must have if it is to be useful." Public vs. Investors Perception on Materiality The public and the private investors have different perceptions on materiality. The entry of auditor’s mate riality is perceived as proprietary data by numerous certified public accounting companies as they are not normally reported to the public (Ryan, 2004). Numerous regulators and scholars have suggested that the auditors must be asked to give a report on materiality entry to the users of the financial statements in their report of audit. ... This stand by FASB regarding materiality has compelled scholars to investigate the opinion of organizers, users and auditors of the statements of finance where most of these researches uncover that there is an anticipation break amongst the users and auditors of the statements of finance as to what that amount to a material misstatement. The expectation break has the implication that the criterion of materiality entirely used by auditors to describe and perform materiality is essentially unique from that used by the users of buyer financial statements. The absence of consistency in materiality opinion limits the users from being knowledgeable in regard to misstatements or omission of items they feel to be material in the financial statements. In this regard, the position taken by the FASB and the â€Å"expectation void† in materiality opinion consequently made scholars and regulators suggest that materiality by auditor’s entry to be reported to the public. The normal al legation is that revealing of the auditor materiality entry would give the users the information of the extent of suitable error or misstatement in the buyer statements of finance and finally, minimize the disparity of materiality decisions by the users and auditors (Fields, 2011). The users of the public financial statements would also be in a position to substantially make use of the auditor materiality entry to evaluate the degree of dependence they can allocate on the audit to ascertain that public financial statements are independent from material misrepresentation. Therefore, it is claimed that the revelation of auditor materiality entry might assist in creating a high agreement amidst the public anticipation of the auditor, including its judgment of the performance by