AN EXEMPLIFICATION ANALYSIS OF MATERIALITY COMPUTATION BASED ON THE CLIENT'S SPECIFICS
Autor (i): Teodora-Cezara Porumbăcean
JEL: M40, M42
Cuvinte cheie: Audit, Materiality, Financial Statements, Reporting
Abstract:
The study aims to assess the benchmark selection for the materiality level computation based on the auditee's specifics. The paper conducts an exemplification comparison analysis suggesting an appropriate benchmark for selecting the quantitative materiality level measurement of two entities that operate in different fields, have different business goals and are of interest for different categories of stakeholders. The paper exemplifies the rationale for selecting a benchmark based on the analysed companies' profile; one being profitoriented, the most appropriate benchmark suggested is a blend between total revenue and profit before tax, while in the second case of a cost center company, a more relevant benchmark suggested is represented by the total expenses. After assessing the benchmark, the paper proposes the rule of thumb based on the suggested literature by considering that none of the entities is of public interest. The topic proposed in this study is of interest not only to the users of the financial statements and implicitly audit reports but also to the practitioners who could benefit from a deeper understanding of the rationale behind the materiality level benchmark selection. Moreover, this paper also contributes and expands the materiality literature about underlying materiality judgment.
The study aims to assess the benchmark selection for the materiality level computation based on the auditee's specifics. The paper conducts an exemplification comparison analysis suggesting an appropriate benchmark for selecting the quantitative materiality level measurement of two entities that operate in different fields, have different business goals and are of interest for different categories of stakeholders. The paper exemplifies the rationale for selecting a benchmark based on the analysed companies' profile; one being profitoriented, the most appropriate benchmark suggested is a blend between total revenue and profit before tax, while in the second case of a cost center company, a more relevant benchmark suggested is represented by the total expenses. After assessing the benchmark, the paper proposes the rule of thumb based on the suggested literature by considering that none of the entities is of public interest. The topic proposed in this study is of interest not only to the users of the financial statements and implicitly audit reports but also to the practitioners who could benefit from a deeper understanding of the rationale behind the materiality level benchmark selection. Moreover, this paper also contributes and expands the materiality literature about underlying materiality judgment.
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