Question

The fact that errors and/or omissions in certain relatively insignificant account balances would not affect an auditor's decision when reporting on the financial statements as a whole relates most closely to which major audit concept?

1) Materiality.
2) Audit risk.
3) Management assertions.
4) Reasonable assurance.

Answer 1

Materiality is the audit concept related to the significance of errors or omissions in financial statement balances and their impact on users' decision-making. It allows auditors to focus on important areas and ignore minor inaccuracies that do not affect the overall financial representation.

Step-by-step explanation:

The concept that you are asking about is most closely related to Materiality. In the context of an audit, materiality is a threshold above which missing or incorrect information in the financial statements is considered to be significant enough to potentially influence the economic decisions of users of those financial statements. It is a fundamental concept in auditing that allows auditors to focus on significant financial statement areas and items, ignoring those that are deemed immaterial or irrelevant to the overall fairness and presentation of the financial position of the company. For instance, if small inaccuracies do not change a stakeholder's understanding of a company's financial performance, the auditor may deem them immaterial. Conversely, errors that could potentially mislead are material and must be addressed.