Cousteau's Judgment on Materiality Argumentative Essay by Nicky

An argument in support of Cousteau's decision to waive a material error.
# 150029 | 1,356 words | 5 sources | APA | 2012 | US
Published on Jan 22, 2012 in Accounting (Financial) , Business (Accounting)


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Description:

The paper explains the concept of materiality, the practice of auditors to waive material errors and auditors' responsibility for the accuracy of financial statements. The paper discusses the view of Cousteau that the fraudulent statements were not automatically material by virtue of their fraudulent nature; the financial statements did accurately reflect the firm's circumstances. The paper contends that if current auditing practice allows for auditor judgment on issues of materiality, then Cousteau retains the right to exercise that judgment.

Outline:
Introduction
Materiality
Current Practice
Responsibility
Cousteau's View
Conclusion

From the Paper:

"The concept of materiality is central to the auditing role. The notion of materiality "recognizes that some matters, either individually or in aggregate, are relatively important for true and fair presentation of financial information in conformity with recognized accounting policies and practices." There is no set definition for materiality, but there are standards. In the US, the SEC governs materiality. It has been argued by Sauer that the SEC has diverged from the primary precedent set regarding materiality in TSC Industries vs. Northway (1976). In that case, the court ruled that information is material if a "reasonable investor" would have regarded it as "having significantly altered the 'total mix' of information available to the public" . As such, it is not the size of the monetary value but rather the type of information and its import to the fair presentation of financial information.
"The vagueness of the term "reasonable investor" leaves the precise interpretation of TSC vs. Northway up to individual courts in cases where fraud is suspected. The SEC, on the other hand, interprets materiality in its own way, which Sauer argues in his article has become increasingly divergent from the relevant court decisions on the subject. Also weighing in on the issue is the PCAOB, which has loosely attempted to guide auditors, although their guidance is also considered by Sauer to be weak."

Sample of Sources Used:

  • Braun, K. (2001). The Disposition of Audit-Detected Misstatements: An Examination of Risk and Reward Factors and Aggregation Effects. Contemporary Accounting Research. Vol 18, No. 1 (Spring 2001), pp.71-99.
  • Shunglu, V.K. (1998). Role of the Auditor in Promoting Good Governance. International Journal of Government Accounting. Retrieved September 7, 2009 from http://findarticles.com/p/articles/mi_qa3662/is_199804/ai_n8794931/
  • Babu, T.R.R. (2004). Audit Materiality. Oxford University. Retrieved September 7, 2009 from http://eprints.ouls.ox.ac.uk/archive/00001060/01/AUDIT_MATERIALITY.pdf
  • Sauer, R. (2007). The SEC's Materiality Standard Becoming Overly Vague and Excessively Onerous. Business Lawyer. Vol. 62, No. 2, pp 317-357.
  • Malkiel, Burton G. (2003). CEPS Working Paper No. 91: The Efficient Market Hypothesis and its Critics. Princeton University. Retrieved September 7, 2009 from http://www.princeton.edu/~ceps/workingpapers/91malkiel.pdf

Cite this Argumentative Essay:

APA Format

Cousteau's Judgment on Materiality (2012, January 22) Retrieved October 03, 2022, from https://www.academon.com/argumentative-essay/cousteausjudgment-on-materiality-150029/

MLA Format

"Cousteau's Judgment on Materiality" 22 January 2012. Web. 03 October. 2022. <https://www.academon.com/argumentative-essay/cousteausjudgment-on-materiality-150029/>

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