12-11-2009, 08:29 PM
Dear,
Where is the differentiation is between your views and the para you quoted?
Lets assume, A rule of thumb that anything less than 5% is probably not material, and anything greater than 10% is material. In this case Between 5-10% requires judgment. If material level is set at 10% then Audit risk i.e. the risk of a material misstatement in the audited financial statements, will be lower, since material level has been set at the upper end of 5%-10%, however, if material level is set at the lower end then Audit risk would be high since 5% may be reached easily hence chances are high, so audit risk would be higher. On the other hand, at 10%, chances to reach at 10% will be remote, hence audit risk will be lower.
I hope the answer is sufficed enough for your understanding.
Best Regards,
Where is the differentiation is between your views and the para you quoted?
Lets assume, A rule of thumb that anything less than 5% is probably not material, and anything greater than 10% is material. In this case Between 5-10% requires judgment. If material level is set at 10% then Audit risk i.e. the risk of a material misstatement in the audited financial statements, will be lower, since material level has been set at the upper end of 5%-10%, however, if material level is set at the lower end then Audit risk would be high since 5% may be reached easily hence chances are high, so audit risk would be higher. On the other hand, at 10%, chances to reach at 10% will be remote, hence audit risk will be lower.
I hope the answer is sufficed enough for your understanding.
Best Regards,