Not all misstatements will be material enough to affect the fair presentation of the financial statement. A material misstatement is one that the auditors determine would change or influence the option of a reasonable person relying on the financial statements for information. Ultimately, auditors must exercise judgment to assess materiality based on the qualitative nature of the misstatements and their quantitative extent. Materiality is also based on auditors' assessment of control risk levels in the organization. The following factors may influence the auditors' assessment of control risk EXCEPT:
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A. B. C. D.D
In auditing, materiality is the concept that financial information is considered material if it could influence the economic decisions of users who rely on the financial statements. The assessment of materiality is a critical part of an auditor's job and is a key factor in determining the nature, timing, and extent of audit procedures performed.
To assess materiality, auditors use both quantitative and qualitative factors. Quantitative factors include financial statement amounts and ratios, while qualitative factors include the nature of the misstatement and the level of control risk in the organization.
Control risk is the risk that a material misstatement could occur in a financial statement, and it is not detected and corrected by the entity's internal control. An auditor assesses control risk based on several factors, including management's awareness and understanding of applicable laws and regulations, client policies and codes of conduct, and the assignment of responsibility and delegation of authority to deal with organizational goals, objectives, operating functions, and regulatory requirements.
Therefore, options A, B, and C are all factors that could influence an auditor's assessment of control risk levels in the organization. These factors are essential in understanding how the organization's internal control operates and identifying areas of risk where material misstatements could occur. For example, if management is not aware of applicable laws and regulations, it may indicate a lack of proper control over compliance with these laws and regulations.
Option D, "None of these," is incorrect because all of the factors listed (A, B, and C) could influence the auditors' assessment of control risk levels in the organization. Therefore, the correct answer is not D but rather one of the first three options (A, B, or C).