The concept of materiality is important to PAs in audits of financial statements and expressions of opinion on these statements.
How will materiality influence an auditor’s reporting decision in the following circumstances?
a. The client prohibits confirmation of accounts receivable, and sufficient appropriate evidence cannot be obtained using alternative procedures.
b. The client is a gas and electric utility company that follows the practice of recognizing revenue when it is billed to customers. At the end of the year, amounts earned but not yet billed are not recorded in the accounts or reported in the financial statements.
c. The client leases buildings for its chain of transmission repair shops under terms that qualify as capital leases. These leases are not capitalized as leased property assets and lease obligations.
d. The client company has lost a lawsuit. The case is on appeal in an attempt to reduce the amount of damages awarded to the plaintiffs.