Ethical Obligations and Decision-Making in Accounting 2nd Edition by Steven Mintz, Roselyn Morris

Exercise 10

How does materiality choices made impact the consistency and comparability of financial statement over a period of time?

Step 1 of 2

Audit:

The audit is the process of checking the financial statements of a company `to ensure that it is 100% authentic and free from any kind of bias or fraud.

Fraud:

Fraud means the willingly wrong representation of something, to hide some material facts from outsiders or mislead them about some facts.

Error:

An error means mistakes. Error in auditing means that representation of wrong facts about the company by mistake. This happens when the accountant used the wrong accounting standard or assumption in the recording process of accounting transactions.

Materiality:

This assumption states that any minor error is acceptable, which does not affect the decision of the user of accounting information. The company considers these minor errors as immaterial.

Consistency:

It means that the company should follow the same accounting principles and methods every year. It show a fair and true view of the financial statements of the company.

Comparability:

It is an accounting principle that states that financial statements need to be comparable.