Description
Respond to the following in a minimum of 175 words:
“Material” has a different definition in accounting than it does in everyday life. What does “material” mean in the context of an audit, and who determines whether an item is material? How does the materiality of an item affect the acceptable and inherent risk borne by an audited company?
Research an article from a credible source. The article should be about a recent accounting fraud incident within a company.
Summarize the article in 350 to 525 words.
Describe any measures you believe could have been used to avoid the problems presented in the article.
Explanation & Answer
Attached.
Running Head: ACCOUNTING
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Accounting
Student’s Name
University Name
Course Name
Date
ACCOUNTING
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“Material” in Accounting
“Material” in accounting refers to information that might be significant to the operations
of a firm. Information in accounting is material if misstating, obscuring or omitting could have
an impact on the decisions made by the primary users of the financial statements (Gordeeva,
2011). Accountants and auditors determine whether an item is material by considering the
nature of the item. The materiality of an item depends on the monetary amount as well as its
nature. The monetary amount of the item is considered in relation to other items in the financial
statements.
The materiality of an item affects the acceptable and inherent risk borne by an audited
company by increasing or decreasing it. The two relate in that the higher the materiality, the
higher the acceptable and inherent risk borne by an audited company. Therefore, an item with a
higher materiality contributes mare to the acceptable and inherent risk borne by an audited
company. Materiality, the acceptable and inherent risk affect the general auditing standards
application especially the fieldwork and reporting that are in the standard reports of the auditor.
Caterpillar Is Accused in Report to Federal Investigators of Tax Fraud
Jesse Drucker in the article: “Caterpillar Is Accused in Report to Federal Investigators of
Tax Fraud” focusses on an accounting fraud by Caterpillar. The company did not comply with
the US rules for financial and tax reporting. According to the report as brought out in the article,
Caterpillar is displayed as a company that constantly carries out accounting...
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