Question

Due to qualitative factors, certain types of misstatements are likely to be more important to users than others, even if the dollar amounts are the same. Identify two qualitative factors that might significantly affect an auditor's materiality judgments, and give an example of each

Answer 1

Qualitative factors that affects the judgements of auditors in an audit of financial statements:

The auditors are responsible to conduct an audit on the financial statements of an organization in accordance with the Generally Accepted Auditing Standards. The following two qualitative factors will affect the judgements of the auditors.

1. Efficiency of internal controls: Efficiency of internal controls within an organization would significantly affect the materiality judgements of the auditors. The internal controls if strong then the auditors will be able to rely on these controls to assume that the available evidence will be persuasive in nature to express appropriate opinion on the financial statements of an organization.

The integrity of management: The management is the body responsible for preparation and presentation of financial statements thus, the integrity of management personnel is key to the auditor’s judgement to materiality. In case the management has relevant integrity then it would be easier to rely on the management representation while expressing opinion on the financial statements of an organization.