Question

Explain why materiality is important but difficult to apply in practice.

A. Materiality is important because it sets a standard baseline for financial statements that auditors must adhere to before the audit opinion can be made. It is difficult to apply because the cost versus the benefit of the standard baseline can be extremely difficult to achieve under larger companies.
B. Materiality is important because it requires the auditor to exercise considerable professional judgment when applying the application to ensure financial gains. It is difficult to apply because the​ auditor's judgment is limited to the professional auditing standards guidelines.
C. Materiality is important because if financial statements are materially​ misstated, users' decisions may be​ affected, and thereby cause financial loss to them. It is difficult to apply because there are often many different users of the financial statements.
D. Materiality is important because it ensures third parties that every financial statement they review are not misstated. It is difficult to apply because there are often multiple auditors and they set materiality to different amounts depending upon what section of the financial statement they are auditing.

Answer 1

Materiality is important because if financial statements are materially misstated, users' decisions may be affected, and thereby cause financial loss to them. It is difficult to apply because there are often many different users of the financial statements is the correct statement for the difficulty of applying the materiality in practice.

Answer: Option C

Step-by-step explanation:

Materiality is important but difficult to apply in practice because the user’s decisions may be hugely affected if the financial statements are misstated materially and this may cause a loss.

It is also very difficult in applying in practice due to having many different users of the financial statements. Making an assessment of the users is compulsory by the auditors and use the application of the materiality.