Materiality: Overview – CPA Exam Definitions

Materiality Overview CPA Exam

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Materiality: Overview

Materiality, in the context of a financial statement audit, is a concept that refers to the magnitude of an omission, misstatement, or error that, individually or in aggregate, could reasonably be expected to influence the economic decisions of users made based on the financial statements. Auditors use materiality to plan and perform audit procedures, evaluate the effect of identified misstatements, and form an opinion on whether the financial statements are free from material misstatement.

Materiality includes both quantitative and qualitative considerations:

Materiality, as it relates to the financial statements and related disclosures as a whole, involves evaluating the combined impact of quantitative and qualitative factors on the financial statements. Auditors need to exercise professional judgment when determining materiality levels, taking into account the needs and expectations of the financial statement users, as well as the specific circumstances of the entity being audited.

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