Tabitha E. Taylor
Professor Ashley Harper
May 05, 2013
As an auditor, my job is to examine companies’ financial statements and make sure the information correctly reflects the economic events that occurred during the accounting period. When a mistake is found the auditor determines if the misstatement is material or immaterial. Misstatements are material when they affect a person’s decision using the financial statements and are immaterial if there is no effect on a person’s decision. When an auditor comes across a misstatement of the financial statements that is considered immaterial, they should recognize it and suggest that management fix it. Since it is immaterial, the auditor shouldn’t insist if management decides not to take the auditors suggestion because after all it is immaterial and will not affect anyone’s decision based on the financial statements. It would be feasible for auditors to conceal this information from their audit clients. In the North Face case, Crawford, The North Face’s CFO, knew the materiality threshold that Deloitte had established for them, and also knew that the gross profit of approximately $800,000 on the $1.64million fell slightly below Deloitte’s materiality threshold for North Face’s collective gross profit. He believed that company would pass on that proposed adjustment. If CFO of North Face didn’t know the threshold, it would be another story. Anyway, general acceptable accounting principle and other accounting standards have set up rules for companies to follow how to record its transactions, such as revenues recognition, match principle, and full-disclosure principle. The financial statements provided by companies should be free of material errors. Financial reporting information should have qualitative characteristics, which are relevance, faithful representation, verifiability, timeliness, and understandability. The function of the financial statement is to let company’s...
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