Accounting

Materiality
Materiality is a term used in accounting and auditing that refers to the degree of an exclusion or misstatement of accounting information where by in the light of surrounding conditions, it makes possible that the verdict of a realistic person depending on that accounted information would be influenced by the misstatement or omission. It directly depends on the size of an error. Thus, an auditor verifies whether the financial statements are to the acceptable standards in financial framework, for example, those of Generally Accepted Accounting Principle (GAAP).

Reasonable assurance in an auditors report is said to be the degree of confidence to an individual or group that receives the information to treat it as legitimate and unaltered. This report is an opinion on whether the information presented is true, correct and free of material misstatements (Riahi-Belkaoui, 1992). It is a useful mechanism for reporting information mostly financial data to the users, particularly in business sectors. Todays standard relies on this concept of reasonable assurance in depicting the intensity of dependence to be found on audited information.

The main reason of an audit is to increase the credibility of a financial data by giving a written reasonable assurance mostly from a source that is not part of that organization. Therefore, providing reasonable assurance to the user is not easy but it is vital in order make sure that reports are fair and a true in reference to the standards of accounting and this is done by ensuring auditors independence in the whole process. This concept is not easy but it has to be done if we want to succeed and avoid the negative altitude the public has on this profession (Rezaee, et al, 2002).

Whereas the audit report could indicate that the company is wealthy it is a necessary but not a sufficient barometer. You have to look at other factors like the general management condition performance trends over time, the debt position and how the company intends to finance itself and so forth. It is important to consult professional consultants to be sure whether to invest or not .Note that it is an audit requirement for companies facing eminent profit decline or loss to include such warnings in their audit reports. Such information helps in making decisions based on your investment option.