Question

When a client fails to follow GAAP, the audit report can be unmodified, qualified, or adverse depending on the materiality. What factors affect materiality that an auditor should consider?

1) the dollar amount in comparison to a base
2) if the misstatement can be measured
3) the nature of the item
4) All the above are factors an auditor should consider regarding materiality.

Answer 1

The factors that affect materiality in auditing include the dollar amount in comparison to a base, whether the misstatement can be measured, the nature of the item, irregularities in the object being measured, limitations of the measuring device, the skill of the person making the measurement, and any other relevant factors.

Step-by-step explanation:

The factors that affect materiality that an auditor should consider include:

1. The dollar amount in comparison to a base
2. If the misstatement can be measured
3. The nature of the item
4. Irregularities in the object being measured
5. Limitations of the measuring device
6. The skill of the person making the measurement
7. Any other factors that affect the outcome, which can be highly dependent on the situation

For example, when assessing materiality, an auditor may consider the dollar amount of a misstatement in comparison to a company's revenue. They would also examine if the misstatement can be accurately measured and the nature of the item being misstated. Ultimately, the auditor must consider all the factors that could impact the materiality of a misstatement in order to determine the appropriate audit report.