Auditing and Assurance Essay Example | Topics and Well Written Essays - 500 words

Auditing and Assurance - Essay Example The omission is considered as immaterial if it does not affect the decisions of the users of financial statements. If the discrepancies in the information provided by the financial statements are material, the auditor needs to check and cross-check the effects of the misstatement on the financial statements as a whole. For instance, a misstatement in the inventory is required to be evaluated through an evaluation of combined effect of its relevant and linked accounts. The materiality of this misstatement, hence, would consider the accumulated impact on inventory, total current assets, total working capital, total assets, income taxes, income taxes payable, total current liabilities, cost of goods sold, net income before taxes and net income after taxes (Arens, Elder, & Beasley, Audit Reports, 2012). The relationship of materiality and opinion is tied with a lengthy process of auditing the financial statements. This relationship, hence, influences the way an auditor works by deciding on the extent and scope of auditing. Materiality determines if the auditor needs more time to be spent on certain areas of financial statements. Moreover, it also decides the nature of the report and the type of opinion. A material misstatement, for instance, results in a qualified, disclaimer or an adverse report if it affects the decisions of the users. Auditors are responsible to discover and report direct-effect illegal acts in the same manner as errors and frauds. On the other hand, there are limitations to detect and report indirect-effect illegal acts. The direct-effect illegal acts are detectable as, usually, they have a financial impact in terms of, for example, tax calculations etc.; whereas, indirect-effect illegal acts are not easily determinable as they are more related to the company’s work procedures, environment and conduct. The three levels of