Assessing Materiality and Risk Simulation Case Study

Assessing Materiality and Risk Simulation - Case Study Example Investors are attracted to companies that have large profits and high dividends repayment. The company management utilizes audit information when making company strategies. Information about profits, losses, and market share help company managers make critical decisions regarding business processes (Boynton & Johnson, 2006). Materiality is the measure of the quantity and quality of item misstatement in a financial report. An audit statement enables the auditor to determine whether auditing has been carried out according to the financial reporting framework. Company items that have no effect on the judgment of the user of the financial statement can be omitted. Important items that affect the users’ judgment require auditor attention. The auditor must allocate materiality to sampled items in order to ensure some accounts are not ignored or under weighted. During auditing, only accounts that matter are audited, and materiality is attached after sampling. Every company has established materiality standards aimed at identifying misstatements in audit reports. Sampled accounts are checked against the set standards to determine the quantity of misstatement (Boynton & Johnson,