AA1000 AccountAbility Assurance Standard
, 314
Abuses, by financial statements management
, 354–371
absolute amounts
, 363
agency conflicts
, 365
aggregated benchmarks
, 357
aggregation risk, ignoring
, 357
audit, statement
, 362–363
below materiality threshold
, 355–356
change in judgment
, 367–368
commentary
, 365
consolidated financial statements
, 368
contra-asset/provision items
, 360–361
delegation, to service organization
, 369
difficult to understand
, 364
entity’s circumstances
, 368
failure to disclose
, 355
far in time
, 364
income shifting
, 361
income statement orientation
, 358–359
manual adjustments
, 371
materiality game, change
, 360
materiality high, setting
, 356–357
materiality, uses/misuses of
, 354
offset
, 357–358
persistent behaviors
, 370
presentation vs. disclosure game
, 359
reclassifications/continuous restatement
, 366–367
shooting, moving target
, 369–370
static vs. dynamic benchmarks
, 358
unbundling misstatements
, 361
undue cost/effort/impracticability
, 360
unrecorded/uncorrected
, 371
watering information
, 366
AccountAbility
, 21, 46, 315
Assurance Standard
, 15
Accounting
, 342
concept, of materiality
, 74, 80
definition, of materiality
, 5
errors
, 114, 119, 124
estimates
, 202
critical
, 260–261
inherent level of imprecision
, 254
judgmental misstatements
, 256–257
linkage between estimation uncertainty
, 254–256
linkage between inherent imprecision/misstatements
, 257–258
linkage between materiality and sources
, 259–260
management bias
, 258–259
materiality effect on changes
, 259
reliability of materiality
, 261
risk of material misstatement
, 253–254
information
cost/benefit ratio
, 74
qualitative characteristics of
, 11, 16
literature
, 93
materiality
, 70
misstatements
, 159
policies
, 2, 115, 360
changes
, 329
disclosure of
, 117, 118, 120, 140, 353
with immaterial effects
, 117
scope of change
, 117
principle
, 149
qualitative characteristics of
, 10
standards
, 22, 31, 59, 93, 101, 102, 120, 151, 156, 159, 160, 212, 257
Accounting Standards Update (ASU)
, 17
Accounts receivables
, 342
Advisory Committee on Improvements to Financial Reporting
, 212, 213, 215, 220, 267
Aggregation
classes of
, 132
risk
, 183
AICPA
Auditing Standards Board (ASB)
, 45
Code of Conduct
, 20
Committee on Accounting Procedure
, 268
American Bar Association
, 73, 202
Annual financial statements
, 284
ASB. See Auditing Standards Board (ASB)
Aspect Boundaries
, 317, 319
Assertions, classification
, 161f
Assessing materiality
auditor
, 210–211
external professional judgment
, 210–211
judgment
documentation of
, 214
professional
, 211–214
reasonableness
, 214–216
and reassessment
, 216–217
quantitative
assurance
, 202
concept of
, 202–203
management discretion
, 208–210
material
, 204–208
meaning of
, 203–204
vs. qualitative criteria
, 200–201
requirement
, 204
in segment reporting
, 285–287
Assets
, 327
impairments
, 90, 361
investment
, 237
pledged
, 237
tangible
, 251
ASU. See Accounting Standards Update (ASU)
Attributes, of materiality
, 47–61
AU-C Section
, 200, 201, 205–207, 210, 211, 213, 217, 219, 222, 224–229, 231, 232, 234–236, 243, 246, 253, 256, 257, 262–265, 267, 269, 271, 273, 275, 284, 285
Audit
, 342
firms
, 232
guidance
, 231
internal
, 362
literature
, 231
US
, 240
practice
, 239
procedures
, 78
risk
, 166, 185
and materiality
, 162, 163f
materiality effect on
, 164f
types
, 162
standards
, 49, 54, 71, 73, 77, 82, 118, 127, 135, 143, 144, 155, 156, 159, 185, 205, 207, 211, 216, 224, 225, 230, 234, 253, 258, 262, 269, 283, 285, 304, 318, 368
Audit Committee
, 78
errors and other legal consequences
, 349
Auditing Standards Board (ASB)
, 143, 144, 155, 156, 159–161, 166–171, 200, 207, 210, 342
transactions/balances/disclosures
, 135
UK
, 244
Auditors
, 2, 76, 81, 83, 118, 124, 143, 150, 153, 158, 162, 166, 172
communication, effect on materiality
, 169f
management for justifications
, 210
opinion
, 241
reassessment
, 216
report
, 362
response to fraud, effect on materiality
, 170f
response to illegal acts, effect on materiality
, 171f
uses of materiality by
, 77–79
CAQ. See Center for Audit Quality (CAQ)
Carry-over effect
, 245, 246
Cash flows
, 2, 3, 16, 18, 51, 62, 105, 127, 129, 136, 329
information
, 329
segmental
, 329
Center for Audit Quality (CAQ)
, 18
forums
, 234
Chartered Financial Analyst (CFA) Institute
, 217, 253
Collective assessment
, 262
Common Conceptual Framework
, 15, 23, 26, 43, 47, 75, 77, 79, 80, 94
qualitative characteristics
, 13f
Common law
fraud
, 43
materiality in
, 43
Comparative information
approach
, 241
basic period, in focus
, 239–240
corresponding figures vs. comparative financial statements approach
, 240–243
counterbalancing/noncounterbalancing misstatements
, 251–252
financial/forensic analysis
, 252–253
financial position, third statement
, 243
materiality
benchmarks, effect of changes
, 250
in future periods
, 243–244
in prior period
, 240
misstatement effect
, 250–251
structure of notes
, 252
uncorrected immaterial misstatements
, 244–250
Component materiality
, 228, 229
vs. group materiality
, 229
pro-rata allocation
, 229
Conceptual Framework
, 32, 145, 256, 360
2015 Exposure Draft
, 44
IFRS amendments to
, 92
in materiality
, 10–33
CON 2 materiality
, 11, 16, 246
user-specific qualities
, 10
Consensus materiality
, 104, 105f
Consolidated financial statements
, 227
Consultation Paper
, 225, 318
Contingent liabilities
, 205
Corporate governance
, 99
disclosures
, 145
Corporate reporting
, 60, 99
COSO
, 201
identify and assess risks
, 174
internal control over financial reporting
, 176
risk tolerance
, 176
Counterbalancing material misstatements
, 359
Counterbalancing/noncounterbalancing misstatements
, 251
Credit risk
disclosures
, 334
management practices
, 334
Critical accounting estimates
, 149
disclosure
, 353
guidance
, 353
in MD&A
, 149
SEC Staff
, 150
Customer options, materiality of
, 341
Degree of aggregation
, 239
Disclosure Initiative
, 26, 32, 43, 76, 81, 93, 142, 348, 349
Amendments
, 103, 114–116, 126, 129, 134
to IAS
, 1, 252, 253
project
, 116
tentative model
prior period errors accumulation
, 250
Disclosures
, 278, 329
cash flow
, 329
changes in accounting policies
, 353
of critical accounting estimates
, 353
differential
, 92
effectiveness initiative
, 6, 27, 86, 92, 93, 103, 124, 125
of financial assets
, 140
forward-looking
, 146, 146f
framework
, 4, 5, 16, 18, 93, 139, 280
issuer’s disclosure controls and procedures
, 352
materiality dimensions for
, 137
overload
, 83
principles-based
, 139
quality of
, 138
relevance
, 16, 137
disclosure based on
, 137f
requirements
, 6, 125, 132, 139
as per SEC
, 139
in Regulation S-K
, 6
in Regulation S-X
, 6
rules-based
, 139
Dividends, classification of
, 329
Fair value measurement disclosures
, 338
FASB. See Financial Accounting Standards Board (FASB)
Federal Securities laws
, 72
Financial Accounting Standards Board (FASB)
, 2, 18, 124, 201, 266, 349, 352
Disclosure Framework
, 5
FASB ASC
, 250-10, 240, 246
FASB ASC
, 280-10-50-1, 228
FASB ASC 250-10-S99-1
, 217, 219, 220, 234, 237, 262–264, 269, 270, 355
FASB ASC 250-10-S99-2
, 232, 246, 252, 359
FASB CON
, 2, 40
simplification initiative projects
, 5
Financial information
, 79, 82
qualitative characteristics of
, 10, 16
Financial instruments
, 132, 140, 141
classes
, 132
Financial liabilities
, 140
Financial performance
, 2, 3, 131, 328
Financial reporting
, 2, 10, 27, 42, 45, 72, 74, 76, 213
frameworks
, 82
fraudulent
, 97, 100
materiality in
, 61
special-purpose
, 93, 94
standards
, 5
Financial statements
, 2–4, 10, 15, 20, 26, 51, 59, 77, 80, 84, 93, 94, 97, 116, 118, 120, 121, 123–125, 127, 129, 142, 144, 150, 157, 170, 171, 342, 345, 365
aggregation
alternative model
, 133
bottom-up model
, 131
assertion level
, 310
audit of
, 54, 175
circumstances
, 308–310
compliance
, 102
in conceptual framework
, 10
disaggregation, top-down model
, 129
and financial information
, 59
general-purpose
, 59, 77
improvement of effectiveness
, 348–349
level
, 305–308
management, abuses by
, 354–371
material information in
, 63
preparation process
, 365
Financing component, materiality of
, 341
Fixing America’s Surface Transportation Act
, 6, 21, 86, 103
Foreign Corrupt Practices Act (FCPA)
, 157
Forensic accounting analysis
, 264
Forensic analysts
, 358, 366
Form 20-F, of IFRS foreign private issuers
, 248
Framework of the Climate Disclosure Standards Board
, 19, 23
Fraud
, 207
fraudulent financial reporting
, 356
IASB. See International Accounting Standards Board (IASB)
IAS 8 definition, of material misstatement
, 249
ICAEW
, 32, 51, 122, 124, 206, 226
guidance
, 244
on materiality for UK entities
, 145
states
, 233
ICOFR. See Internal control over financial reporting (ICOFR)
IFAC guide
, 207, 233
to ISAs
, 244
IFRS. See International Financial Reporting Standards (IFRS)
conceptual framework, assessor in
, 55
foreign private issuers
, 351, 353
IFRSs express
, 326, 327
requirements
, 345
Immaterial
, 22, 119
disclosures
, 172
errors, intentional
, 154
information
, 122, 124, 150
allowed disclosure of
, 123
item
, 168
misstatements
, 114, 124, 153, 155
in ICOFR
, 184
intentional
, 155
Impairment losses
reversals of
, 331
Impracticability
, 31, 119
Income statement gains
, 333
Industry Working Group score
, 316
Information
, 325–340
aggregation
, 128, 128f
disaggregation
, 128, 128f
Inherent estimation uncertainty
, 255
Inherent risk
, 162
materiality and
, 166f
Integrated reporting
, 15, 46, 54, 61, 71, 82, 86, 99, 104, 106, 136, 203
framework
, 18, 25, 202, 319
materiality
, 19
definition
, 96
Intention, failure to reassess
, 367
Interim amounts
materiality and audit risk of degree of estimation
, 282
Interim financial statements, goal of
, 277
Internal control over financial reporting (ICOFR)
, 172
International Accounting Standards Board (IASB)
, 2, 10, 104, 201, 203, 204, 216, 260, 326–345, 356
basis for conclusions
, 253
disclosure initiative
, 15
projects
, 5
four-step approach
, 303
framework
, 16, 18f, 23, 43, 46, 75, 80, 134, 202
qualitative characteristics
, 12f
IFRS 16 recognition or measurement requirements
, 326
practical implications
, 326
principles of disclosure project
, 45
staff
, 201, 203, 206, 241, 281
users’ decisions
, 342
International Auditing and Assurance Standards Board (IAASB)
, 26
discussion paper
, 253
International Auditing Standards
, 240
International Financial Reporting Standards (IFRS)
, 2, 44, 208, 326–345
departures
, 327
references to materiality triggering-specific actions
, 343–344
requirements
, 2, 327
International Public Sector Accounting Standards (IPSAS) framework
, 11
qualitative characteristics
, 14f
Inter-period comparability
, 327
Investors Technical Advisory Committee (ITAC)
, 320
Involuntary accounting
, 118
Iron curtain approach
, 245
ITAC. See Investors Technical Advisory Committee (ITAC)
Item
, 47, 122
vs. its content
, 48
Magnitude/likelihood model
, 90, 90f, 313
Management
absolute amounts
, 363
bias, defining
, 258
commentary
, 143, 365
communication
, 353
financial accounting treatment
, 350
internal
, 362
multinational groups
, 368
reporting
, 100
typical materiality abuses
, 354
Manipulation
, 356
income statement
, 358
Material information
, 70, 125
in users’ decision process
, 87f
Materiality
, 2
application, levels of
, 79, 120
component
, 227–231
consolidated vs. entity/separate financial statements
, 227
at lower levels
, 225–227
whole financial statements
, 224, 225
applied to
bookkeeping
, 151–159
internal control over financial reporting
, 172–187
management commentary
, 143–151
presentation and disclosure
, 120–143
recognition and measurement
, 114–120
assessment of
, 47, 85, 351
securities regulators
, 82
in auditing
, 159–172
literature
, 33
augmentation in segment reporting
, 286
concept of
, 82, 83f
vs. cost/benefit constraint
, 30
decision on
, 79–82
definition
, 33–47
comparison
, 34f
as per IASB
, 76
as per US Supreme Court
, 59, 60, 71
determination
, 106, 316
process
, 302
dimensions of
, 95, 96f
disclosure dilemma
, 94
discrimination
, 104
entity specificity of
, 20
for financial reporting
, 19
financial statements, role in
, 27
graduation of
, 85f
vs. impracticability
, 30
like inventory
, 357
as managerial concept
, 79
objective of
, 10
paradox
, 348
as planning tool
, 104f
principle
, 317
prudence/neutrality, effect on
, 27
vs. relevance
, 16–19
in CON 2
, 17f
relevance, relationship
, 24f
reliability, interaction with
, 28
standard-specific, defined
, 326
tests
, 50, 72
vs. understandability
, 25
users of
, 80
uses and effects
, 70–79
Material misstatements
, 31, 78, 158, 186
classification
, 160
definition
, 160
in estimation range
, 257
in point estimate
, 257
risk and assertion
, 161
Material non-adjusting events
, 330
Material permits auditors
, 3
Misstatements
, 263, 350, 355–359, 361
accounting policy
, 370
balance sheet
, 357, 359
immaterial
correction of errors
, 274–275
GAAP
, 267–268
immaterial errors, material effect of accumulation
, 269, 273–274
intentional immaterial misstatements
, 269–271
interim financial statements, materiality for condensed format of
, 283
judge intentions
, 271
legal consequences
, 275
objective element, investigating
, 272
particular presentation/influencing users
, 271–272
policy to ignore
, 272–273
relevant to audit
, 273
tone from top
, 275
treatment of errors
, 275–277
individual vs. cumulative
, 261
aggregation technique/absolute value
, 263
analysis at cumulative level
, 262
analysis at individual item level
, 261–262
offsetting misstatements
, 262–263
trends/ratios
, 263–264
intentional immaterial
, 355
materiality
annual financial statements
, 280–281
audit considerations
, 283–284
correction of errors, reporting for
, 278–279
estimation uncertainty and materiality
, 281–283
in interim reporting for changes in estimates and accounting policies
, 279–280
MD&A, interim periods
, 284
of prior period
, 247
reference period under IFRS
, 277–278
reference period under US GAAP
, 278
small vs. large
, 221
unbundling
, 361
Misuses, of materiality
, 354
Multinational companies
, 371